Monday, 23 September 2013

Industry Focus – Equestrian Transport – A Steady Trot Global Business Model for the Best in Class

At the macro level, in reaction to Benanke's initiative to make his move 'taper-less', capital markets climbed strongly to then see nigh-on immediate profit-taking amongst talk of the need to taper at some point. When that point comes is debatable, depending upon a a myriad of factors; from domestic unemployment rates and mortgage approvals to EM foreign policy and America's desire for further ASEAN soft-power.

And at the micro level, at least in the previously overtly depressed tech sphere, Apple appears to have bucked its previous weakening thanks to its simultaneous worldwide launch of '5' and balance sheet strength. Whilst Blackberry's institutional shareholders, (including presumably Canada's own Ontario's Teachers Pension Plan - like all pension plans under pressure to fulfill future obligations), seem to suffer by not becoming activist. The easily imagined 'Fairfax turnaround' of Blackberry, based upon organisational restructuring, balance sheet strength and critically the massive USP potential of device security, should perhaps in this instance be of ethical-benefit to those long vested shareholders with a far greater Canadian socio-economic interest. As for Nokia's acquisition by Microsoft, the deal was understandable, though ex-CEO Elop could have served his and Microsoft's reputation far better by not taking the $18m fee and instead taking long-hold Microsoft shares.

However, away from such immediate macro and micro issues, investment-auto-motives illustrates the long horizon potential of what is even in the automotive sphere, a rare and interesting breed: the oft neglected Horse-Box sector.


The Horseless Carriage -

Since the Renaissance onward, after centuries of imagination and experimentation, the notion of the 'horse-less' carriage came to pass through the technical development efforts of experimental venturists. Today we recognise the historic names of: Cugnot, Bollee in early 'steamers' and Daimler-Benz as originators of the modern car, whilst Panhard-Levessor fettled its basic mechanical layout, the likes of Swetland set down component standardisation and Ford adapted from butchery, textiles and gun-making, the production line.

By the second decade of the 20th century the increasingly efficient, durable and affordable petrol powered motor vehicle had become the increasing norm of road transportation, set to wholly replace those horse-drawn carts, carriages and coaches which themselves had been eroded by the canal, steam railway and electric tram.

Recently, the Frankfurt motor-show provided a glimpse into the short to long term automotive horizons for the masses, whilst other trade and consumer shows offer insights into the lesser profile worlds of trucks, motorhomes and caravans.


In a Far Corner of the Field -

Yet, a world away from passenger cars and into the far reaches of large LCV vans and HGV 'pantechnicon' trucks is a very different vehicle micro-climate. That of equestrian transport, and the emergence of the ever evolving horse-box.


An Aspirationally Driven Arena -

Many millennia after the Mongols first domesticated the horse, its role as a “beast of burden” has for the most part, finally ended. Where not used as very basic transportation in the poorest agricultural regions – donkeys and mules typically hardier - or in the sphere of historic and eco-tourism, the horse has become a fascinating anachronism in a somewhat rarefied atmosphere.

This anachronism based upon what post-modern philosophers ascribe as 'sign value', the societal representation. Akin to the likes of certain antiques or classic cars – which themselves gain ever greater status when still in use, as an heirloom, or best as both - the horse today purveys an ideology of rurally associated high-culture, as opposed to urban orientated mass-culture.

As ever, within this 'high-end' are the subtle power-shifts of wealth and that of the ever-present notion of 'class'. The horse often deployed as both social gate-keeper by the establishment and social accoutrement by upwardly mobile types; in the hope of becoming accepted and so not considered 'arriviste'. Jane Austen's 18th century depictions still as true today.

Invariably tied to such social representation is the potent issue of rural land ownership, very much so in the west, and now through the progress of global urbanisation, increasingly so elsewhere. Less so for its economic reasoning, given the massive industrial scale required today to farm profitably, but instead to demonstrate one's “connection to the soil”.

To many this may seem little more than overt snobbishness, but within this phrase previously lay the serious topics of socio-economic and ecological responsibilities; the two very much previously and arguably still today mutually inter-dependent.

This then, at least from within the fold, seen as the perceptional difference between responsible landed-gentry and the greater tendency of irresponsible 'common-folk'. The former's ability to absorb broad intellectual education, understand the long-term picture, the willingness to defer satisfaction, and lead for the benefit of all, associated was essence of respect, honour and etiquette (ie decency). Of course such standards were not always upheld by the supposed nobility, its likeness instead used as the social taps of manipulation and hypocracy to gain advantage.

Nonetheless, it is the notionally combined 'aristocratic' qualities of courage, tenacity, grace and decency which at least appear to still echo throughout the equestrian realm.

Given continued urbanisation mass-culture, the amorphous effect of social networking, the bling-centric 'ghetto materialism' promoted by US music videos and the tribal twist of ethnic languages, today that which is outside this modern mainstream, especially that which 'olde world' and separate – though of its own distinct tribal nature - gains ever greater currency as above the ever growing, ever mentally congealed 'Yahoo' crowd.

As imagined by Jonathan Swift in 'Gulliver's Travels', it was the fictional horse society of the Houyhnhnms (meaning the perfection of nature) that demonstrated itself as truly noble.

This then perhaps the age-old ideology behind modern-day equestrianism.


Contemporary Interpretation -

Whilst the average person with medium level disposable income in the domestic suburban setting is able to satiate his/her appetite for the veneer of 'establishment class' via the purchase of country-manner goods such as Barbour jacket or Hunter wellington boots, few are truly to the country manor born. Hence as these signifiers become diluted, so the remaining valid signifiers become ever more remote and out of reach for most and so attractive to those who have always inhabited 'the fold' or seek to join.

So the horse becomes and ever increasingly powerful indicator of either real or supposed background, accordant sensibility and differentiation from the mass and so exclusivity

Moreover, given man's own history of horse breeding, even the notionally noble horse has for centuries been assessed relative to a structurally codified heir achy of bloodline, physical structure and performance form.

Thus the horse even in its own sphere forms an endemic social shadow. From the beloved yet near financially valueless new-born foal of the farmer's child (the loveliest kind, the purist in spirit if not bloodline), to that of the aspirational totem of having 'joined the ranks' by the nouveau riche, to the obliged traditions of the rural elite whom reside in Who's Who, to the racing stables of Sheikhs, syndicates and even hedge-funds (hardly 'hedging'), to the pageantry, pomp and circumstance associated with royal occasions.

Each of these interests and avenues tends to meet at the focal-point of sporting equestrianism; today a broad, deep, multi-level and importantly increasingly global arena.

An arena into which the 'new money' of today's and tomorrow's emergent HNW individuals take an interest, this in turn setting the aspirational interests of many of the burgeoning EM upper middle-class.

So, the romantic and increasingly exotic figure of the horse obviously still endures as a powerful symbol to the 'aspiranti' over the years.

This very well reflected in the figurative branding of Lloyds Bank by way of its 'black beauty', and Ferrari's 'cavallino rampante' (prancing horse).

In a humorous manner, such 'mecho-animalism' has recently been taken yet further with the so-called 'Furrari', the black velvet wrap-effect laid upon a Ferrari 599 GTO as seen in Knightsbridge, mimicking both horse and the traditional riding 'cap' (a successor to the original 'coke' hat, latterly the bowler)

It is also a little recognised fact that it is in America's horse-racing origins of the Quarter Horse that provided the petrol-heads today with the quarter-mile drag-strip.

Equestrian Sports -

As for equestrian activities themselves, the spectrum ranges from the early childhood learning of the regional British 'pony-club' – similar elsewhere - to the heights of the World Equestrian Championships. And as seen last in Greenwich and Horse Guards, London its increasingly popularity within the Summer Olympic and Paralympic Games.

In summary it spans:

Competitive Riding:
- Thoroughbred racing (flat and jump [various])
- Trials / Eventing (dressage, cross-country, show-jumping)
- Single discipline competitions (of those above)
- Endurance racing
- Polo
- Gymkhana (often younger riders)
- Reining (akin to western-style dressage)
- Vaulting (akin to saddle based gymnastics)

Competitive Driving:
- Carriage driving (2 and 4 wheels antique)
- Fine driving (4 wheels modern)
- Harness racing (light 2 wheel 'sulky')
- Roadster driving

Obviously on a worldwide basis other types of sport and performance occur, from the travelling Rodeos and Horse Pulls over the USA to Vienna, Austria's fabled white horses ('greys') at the Spanish Riding School to the Harrods' 'livery horses' to the nostalgic Brewery Dray as used for PR.

[NB Beyond the yesteryear use of horses, some regional brewers such as Hertfordshire's McMullens (still independent today) utilised very connective value-chains: from stabling to cart and carriage building to coopering [barrel-making] to seed trading. Such were the ingrained Victorian power-houses].

An Aside -

Turan Ahmed and thus investment-auto-motives does not consider fox-hunting, now UK illegal, a sport. It is simply a much contrived ritualistic and barbaric ceremony to re-affirm tribal affiliation, in which 'blooding' used to brainwash the youngest members. Any ground vermin, such as the (not brilliantly crafty) fox, plus animals destined 'for the table', should be dispatched in the most humane manner possible. Ideally using an accurate rifle not broad-cast shotgun, itself only applicable for airborne fowl, which likewise should only be 'bagged' to be respectfully eaten. The shooting of any animal, vermin or bred, cannot be viewed as a pleasurable activity.


Events -
As regards the equestrian sporting calender itself, we previously saw the Germans win both team and individual golds at the European Eventing Championships in held in Malmo (sponsored by HSBC and Volkswagen).

This followed in the UK by the Burghley Horse Trials (sponsored by Land Rover), won by a New Zealander (NZ well represented) who having also won won at Badminton (sponsored by Mitsubushi) might take the (Rolex) 'Grand Slam' with a possible win at Kentucky. And we saw the last of the flat season 'classics' with the (Ladbrokes) St Ledger, following the previous 1,000 and 2,000 Guineas Stakes, Oaks and Derby.

Given that the sizeable cost of owning even a single horse is high for feed, stabling, training, vetenary, transportation, shoeing, 'tack' and saddle equipment needs , expenditure for the specialist needs of competition horse – and more typically – horses, runs to very high figures when operating a fully functioning stable.

Thus as equestrian competition has become professionalised there has been the inevitable rise of corporate sponsorship. Both to contribute toward the cost of staging an event, and toward winner's prize-money. However, for participants the fact is that even if won, prize-monies rarely cover the full costs of annual sporting participation, hence the involvement of wealthier typically self-funded competitors. However, the increased size of prize monies seen especially in Asian and American racing has tempted investment consortia to fund various stables.

This then provides a very general background to equestrian competitions without detailing the various UK, European and International programmes.


A Word to the Wise -

The conservative nature of investment-auto-motives means that it views the trend by some alternative asset managers to delve into grande-prix thorough-bred racing as a high risk investment folly. One in which the large financial sums at stake may only serve to undermine the integrity of the historic sports.

Whilst their clients, the HNW “sophisticated investor” clients may be able to afford to lose said monies, and thus be willing to undertake greater risk-reward ventures, so basing what is notionally called investment potential upon the semi-controlled vagueries of bloodlines, broodmares and training regimes, and most importantly the instinct of the animal itself.

Very possibly a compelling statistically based 'investment platform' may have been created to promote such efforts, and indeed may have semi-credence on paper, and assert the risk factor, but from a puritanical investment perspective the numerics behind horse racing is hardly as transparent and translatable as a company's balance sheet and market performance.

So far better for the serious and ideally informed investor, HNW or not, to find the 'golden nugget' in associated products and services provision.

Previous web-logs provided 'Wise Words from the Horses' Mouths' communicating the most informative opinions of renowned investors, a far better approach to convincing equestrian related investment.

[NB this comment bears no inference to the renowned Weatherby's, which as reported by the FT, runs its own banking unit for its clients and espouses non-equine related financial diversification. Nor does it seek to undermine such ventures as Qatar's Quipco, which although directly involved, well recognises the need for broader investment portfolio planning].


Commercial Ties -

Given the cache of the events and the typically very solvent audience that personally attend, or view via TV and multi-media coverage, corporate sponsors obviously believe that the resultant gained exposure provides valuable exposure and goodwill.

Whether to maintain a brand's traditionally associative standing, and so authentic, premium overtones, as in the case of Land Rover; or to assist newly sought positive brand connotations as with Volkswagen. Though now with greater emphasis on specifically targeted vehicle models, such as LR's Freelander and VW's Toureg and Passat CrossTour. Elsewhere, to re-invorgate a brand's relevance as in the case of Jeep sponsoring individual high profile riders.

[NB As an interesting note, the VW badged up-scale Phaeton model derives its name from supplemental applications since its origins in Greek mythology. The term was previously applied to a type of 18th century elevated carriage with intentionally high centre of gravity and so requiring good and acclaimed driving skills, so a status symbol. In the Edwardian era the name was used to describe a specific type open top car body (typically a dual cowl, though not as sometimes used the half open top landaulet].


The Automotive Horse-Box Scene -

The automotive transportation of horses initially arose and from the need to relocate a small number of British, French and opposing German officers' horses in WW1. Thereafter in peacetime, the need to move prestigious and increasingly valuable race horses between course meets, the animals' values growing as the increased leisure-time and incomes of the British working class allied with radio transmittance allowed for a well orchestrated betting industry to evolve, in turn raising the stakes for horse owners and trainers.

At the beginning of the 20th century, unlike Europe, the US and Canada still had many family run homesteads and farms with an abundance of horses used for field and prairie tasks.

Thus the proclivity toward the monetarily valuable European sporting horse versus the less costly American working horse, to which was added the very different disposable income levels of their respective owner types effectively gave rise to the different transportation modes seen until today.

Britain, Europe and latterly Hong-Kong, Singapore and Asia tended toward a dedicated singular safety and comfort orientated van type vehicle. Whilst in North America became dominated by combinational towing sets of truck and trailer; those farmers requiring the multi-tasking capabilities of individual truck and towed trailer, itself primarily to transport cattle to market, and occasionally horses.

US and Canadian markets have matured,especially since the 1950s, often using larger '5th wheel trailers' which articulate upon the swivel-base of a heavy duty pick-up bed look and behave like bigger semi-trailers. Additionally, the need to accommodate a greater number of animals by the bigger stables introduced the use of full-size semi-trailers, with a large tractor unit hauling long horse-box, (what the British would term an articulated lorry).

However, traditional standard-pull 'ball and cup' hitches are also used to haul smaller horse-trailers of lower GVW as pulled by smaller vehicles or motor-home recreational vehicles, but periodic news coverage of 'ball and cup' hitch failures prompts re-examination of the overtly basic method and so type improvement.

Though, as will always be the case, the methods of horse transportation and the preferred hitching method used will invariably be related to cost and affordability by the user.

It is also understood that in the RoW regions of South America (ie Argentina and Brazil) and Australia, that a mix of Euro-type horse-trucks and US-type horse-trailers are used, unsurprising given the combined influences of Europe and the USA, much dependent upon traditional practice and/or the preference of the stable's owner, the trainer, the type of product locally and (as ever) the buoyancy of the stable's own accounts.


Product Types -

In Europe / Asia:

1. Vehicle Integrated Horse Van* / Horse Box**
1a) Coachbuilt type (dedicated) [upon new or pre-owned chassis]
1b) Conversion type [typically upon low mileage pre-owned chassis]
(animal capacity dependent upon wheelbase and GVW)
2. Truck and similar closed Trailer 'Set' (for carriages)
3. Trailer based Horse-Box / Horse Van [new construction]
4. Trailer based Caravan

* typically using PLG and C1+E LGV licence
** typically using HGV licence
[NB Euro regulations stipulate HGV to be > 3.5T, which may include relatively simple LCV van derived horsebox conversions through to luxurious and technically sophisticated 6-axle bus chassis coachbuilds with body-side 'slide-outs', high internal content and air-suspension, differential lock and rear-steer chassis].

North America

1. 5th Wheel 'Gooseneck' Articulated Trailer (professional/serious amateur)
2. Full Size Semi-Trailer (professional)
3. 'Ball and Cup' Tow-Bar Trailer (entry-level amateur)
4. Truck and similar closed Trailer 'Set' (for carriages)

South America / Australia / Australasia

1. Various of Above
1a. Increasing use of lower Japanese HGV chassis for 5th Wheel Trailer


Horse-Box Manufacturers / Service Providers -

A sample of companies follow in alphabetical order, many foreign producers gleaned from a directory website:

UK -
Alexanders (Boroughbridge, North Yorkshire)
Bloomfields (Boughton, Nottinghamshire)
Cedar's Farm (Draycot, Derbyshire)
Devon Trailers (Chulmleigh, North Devon)
Empire (Kidderminster, Worcestershire)
EquiCruiser (Lasham, Hampshire)
Equi-Trek (Holmfirth, West Yorkshire)
Graham Edwards Trailers (Full Sutton, North Yorkshire)
Gazeley (Newmarket, Suffolk)
Ifor Williams (Corwen, North Wales)
Middlewood (Market Drayton, Shropshire)
Morgan Jones (Ceredigion, West Wales)
Oakley (Ware, Hertfordshire)
Royale (South Woodham Ferrers, Essex)
Wrights Engineering (Littleport, Cambridge)

France -
Vans Theault [HGVs] (Ponts, Normandy)
Vans Fautrus [Trailers] (Montcarat, Dordogne)

Germany -
AK Fahrzeuge (Neuweiler, Baden-Wurttemberg)
Bockmann Fahreugwerke (Lastrup, Lower Saxony)
Fahrzeugbau Gimmel (Deizisau, Baden-Wurttemberg)
Ketterer Spezialfahrzeuge (Karlsruhe, Baden-Wurttemberg)
Neihoff Karosserie und Fahrzeugbau (Kreis Warendorf)

Netherlands -
Anemone (Sherpenzeel, Gelderland)
Lehel (only dealer locations given)
Regent (no HQ location given)

USA -
4 Star Trailers (Oklahoma City, Oklahoma)
All American Trailers (Norco, California)
Bison Coach (Milford, Indiana)
Cherokee Trailers (Oklahoma City, Oklahoma)
Hart Trailers (Webb, Iowa)
Keifer Trailers (Kanawha, Iowa)
Merhow Trailers (Madison, Alabama)
Silver Star Trailers (Ridgeland, South Carolina)
Sundowner Trailers (Coleman, Oklahoma)
Universal Trailer (Cincinnati, Ohio)
sub-brands include:
Exiss Trailers
Featherlight Trailers
Haulmark Coach and Trailer
Sooner
Wells Cargo

Canada -
Bergen Industries (Drake, Saskatchewin)
Black Lightening (Winnepeg, Manitoba)
Equest Trailers (Debert, Nova Scotia)
Jamco Trailers (Brucefield, Ontario)
Norberts Manufacturing (Glenboro, Manitoba)

Australia -
Crisfloats (Jindara, NSW)
Cruise Horse Floats (Caloundra, Qld)
Easy Traveller Trailers (Meadowbrook, Qld)
Equestran Floats (Minto, NSW)
Equine Oxer Industries (Salt Ash, NSW)
Horseman Floats (Athol Park, SA)
Macro Trailers (Caboolture, Qld)
Monterray (Ballarat, Vic)
Mustang Floats (Bridgetown, WA)
Olympic (Gepps Cross, SA)
PBL Floats (Brendale, Qld)
Pegasus (Montrose, Vic)
Rivenlee Floats (Armidale, NSW)
Runner Floats (Geelong, Vic)
Trophy Trailers (Boonah, Qld)
Trojan Horsefloats (Red Hill, Qld)
Unicorn (Uraidla, SA)
Wego (Lara, Vic)

New Zealand -
CHB Trailers (Central Hawkes Bay)
Cruise Horse Floats (Caloundra)
Epona Horsetrucks (Hawkes Bay)
Float Factory (Invercargi)
Hatton Horse Floats (Blenheim)
Karizma Horse Floats (Auckland)
Majestic Horse Floats (Auckland)
Pinto Trailers (Auckland)
Wade Group (Hamilton)
Zenith Floats (Auckland)

Argentina -
Nautiruedas Equestrian Retail (Lopez, Buenos Aires)

Brazil -
Reboques Vale do Aco (Ipatinga, Minas Gerais)

[NB the companies named gained from basic desk research, and no doubt unknown others exist, especially so within BRIC and CIVETS countries]

Product Prices -

Below is listing of price points from one un-named UK manufacturer, including VAT, indicated as generically representative with no intended preference.

Trailers
Eleven variants £5,600 and £16,500 (inc mini-caravan)

Light Horse-Boxes
< 7.5T : Eight variants between £27,400 and £45,500

Heavy Horse-Boxes
> 7.5T : Five variants between £57,300 and £82,900
> 12T : Eleven variants between £85,400 and £196,600

Obviously the greater the size, weight and brand of the base vehicle the higher the basic 'floor' price, and the higher the customisation and technical content involved the higher the 'ceiling' price.

This excludes any inventory of pre-owned vehicles often made available for sale by new vehicle builders.

Services -

Not all but most horse-box manufacture business models seek to counter economic cycles, thus to try and smooth income stream and gain growth, many been built around a broader product and service provision.

Additional offerings are typically:

1. Servicing / Diagnostics
2. MOT
3. Refurbishments
4. Repaint
5. Accident Repairs
5a. Registered Accident Damage Repairers
6. After-Sales Warranties
7. Roadside Break-Down Assistance / Recovery
8. Short-term Horse-Box Hire

Speciality Finance -

The equestrian world may is considered specialist by most financing houses relative to other commercial spheres given the specific nature of assets held. These often have little use in other sectors, typically only the agricultural sector taking an interest in specific 'yard' assets, such as ATVs, mini-tractors and trailers.

It may be the case that if the assets of a defaulted 'equine loan' cannot be sold to a new buyer within the equestrian world, and that its is held as a declining paper-asset on finance house's balance sheet and so likely to be written off, it may need to be liquidated at a further heavily discounted price at an agricultural auction or similar.

This generates a greater amount of risk to any finance house, with the greater possibility of not recouping original capital outlay.

To this end speciality finance houses have developed over the decades to cater for those seeking credit; some of the best known British names being the likes of Peregrine, Close Brothers and Eastern Counties Finance.

[NB To diversify solely from equine interests and so balance their own business models, such companies also operate in other specialist sectors, specifically individual sections of the rural economy (nurseries, horticulture, camp-sites, forestry, shooting estates, hatcheries, fisheries, haulage firms etc, to general 'ground care' for local authorities, leisure facilities golf clubs etc

However, it should also be noted that some equine finance houses with land-specific interests, for equestrian building construction, agricultural land development and similar, appear to offer over-liberal terms, such as self-certification for sole traders etc. It is not unusual for such high-risk agreements by ambitious clients to go sour if the proposed scheme does not materialise (eg planning permission etc) and so upon default the land may revert back to the lender. Finance houses obviously prize land for its restricted supply and so value growth stability...“because they've stopped making it”].


A Tale of Two Worlds -

As explained previously, equestrian sports are typically self-funded, especially so for the new owner/rider and aspirant amateur, with only the best professionals and Olympic teams able to gain substantial corporate sponsorship which in turn affords purchase of the best equipment.

And, since equestrian equipment the transportation vehicles tend to be specialist, the vans/lorries and trailers tend to have extended – indeed over-extended - lifetimes, as new riders enter the sector and seek-out affordable vehicles.

It is unfortunately not unusual for a na├»ve and relatively budget constrained new participant to be directed toward a horse-box which “just happens” to be for sale by a 'friend's friend'; when it is in fact sought to be off-loaded given the higher expense of truck repair costs.

Product Remit -

Horse-boxes, whether integrated or towed are intended to provide as comfortable a habitation environment as possible for both riders and horses, specifically to reduce as much as possible the stress on the animal.

The Stress Effect:
Animals may initially, or indeed for some always, be highly stressed when transported given the alien environment. Leading to claustrophobia, strange motion and sounds and the inability to escape, but seeking to do so by 'scrambling' so possibly damaging itself. This then unlike its familiar homelike stable where it can peer over the stable door. When in transit, this often leads to stress symptoms such as heavy sweating and heavy excretion.

Research:
Research into the subject indicates that a horse ought to be rear facing so as to counter vehicle braking force with their stronger rear hocks, and otherwise faced forward, but ideally not sideways or in a herringbone manner since the already stressed animal cannot easily counter braking retardation. It should also have at least enough space to allow one step in all directions, so as to be able to rebalance as needed, and have at least 750mm headroom to the box ceiling. Other, non fact based research, but pragmatically learnt by horse-folk, is accompaniment with any favourite item, usually a soft toy should be within view by the horse to assist emotional comfort.

[NB investment-auto-motives suggests that if possible a life size photo of a familiar figure (owner, groom etc) also be attached to the facing internal wall for similar effect].

Box Configuration:
It is often the case in what is an inevitably limited sized box, that horse owners would configure or re-configure the vehicle's layout so as to sacrifice their own space/comfort in order to provide the horse or horses with a improved conditions.

NVH:
However, one largely overlooked issue is the topic of travel NVH (noise vibration and harshness) for the animals, this because whilst the vehicle cab may well have CCTV into the rear box or a glazed intermediate panel, the internal noise, which can mildly spook a horse, cannot be easily experienced by a remote driver and passenger. Of special note is the inevitable 'clanking' of un-damped stall doors, dividers and breast bars, conventionally made of metal (aluminium or steel – as that of the box's own construction).


Investment Drivers -

To date given the horsey-world's ties to traditionalism and so conservatism appears to have arguably restricted the growth of its associated manufacturers, this the external view as compared to other sports such as cycling or sailing or indeed marathon running, sports in which materials science has played an enormous part in performance delivery, as well as of course the importance of the participant's own physical training regime and the effects of sports and bio-sciences.

Indeed, because so close to social reach and use, the worlds of running and cycling saw a consumer boom respectively through the 1990s to date and the mid 2000s to date, as sports related fashion in both apparel and equipment created an economic snowballing as – in the very middle class manner - the technology story behind consumer purchases – the brand integrity - was told and retold to friends over the dinner-party table or restaurant table.

Equestrianism obviously is hardly as accessible to masses as running or cycling, but parallels, especially regards biologically based improvement, appear valid.

Research and Development -

Horse Directed:
As the topic of broad animal welfare gains ever more importance amongst the global populace, so there is natural increased expectations regards equestrian husbandry when travelling - and for top-flight professionals touring.

[NB This not simply for road transportation but for all modes: road, rail, air and sea].

1 Physical Safety
2.Mental Well-Being

Over the last decade these imperatives have re-awakened the participants within horse-box sector.

The Physical:
A. Internal Soft Surfaces

Those more safety orientated manufacturers highlight the application of internal wall padding to the box interior, and although different box-makers highlight different USPs, the issue of internal accident safety should be brought to the fore and further explored by all providers.

Since initial low volume market experimentation in the 1970s and 1980s by GM, Ford and Mercedes Benz in the car sector, occupant safety 'air-bags' have become ostensibly a standard fitment to cars and trucks, saving hundreds of thousands of lives since the 1990s. This concept has been adopted for expensive but fully functioning, injury sparing, horse-riding 'life-vests'; where upon any fall from the horse activates a small connection between vest and saddle, immediately inflating the vest with front, back and critically neck supports.

Since the fact that horses are indeed emotional and financial prized possessions, the desire to protect the animal in a horse-box crash is paramount after that of driver and passengers.

Presently, the idea of the horse-box air-bag appears fanciful given the realities of the very size of internal space involved, the many different layouts used, the moving posture of the animal and of course what are the research and development cost limitations for what is a niche vehicle industry.

But perhaps a kind of crash cushion solution – obviously cleanable – might be developed; with special attention taken to angled internal surfaces and corners To be installed in new builds and retro-fitted into existing vehicles.

Variously it may consist of air-filled collapsible, detachable wall liners which expel air on contact with a thrown horse, thus a type of full-time airbag, or in first instance, simply consist of close-cell foam structure within plastic outer layer that can be wall hung top and bottom.

These obviously more pragmatic and so realisable solutions than the idea of an internal horse-box air-bag, or indeed similar inflatable horse-vest, but using as much learning from those disciplines as possible.

The Mental:
B. Quietened Interior

This pertains to concerns regards the internal noise of the horse-box whilst travelling. Historically given the basic nature of construction, the internals of a horse-box have been relatively loud with unpredictable clanking/banging noises; resulting in an increasingly stressful environment for the animal. Noise origins partially stemming from the box unit itself, but most often from the necessarily moveable (re-configurable) items within: the main doors, stall doors, sectional dividers, breast bars, head dividers, with perhaps a particular culprits being relatively loose door and partition hinges and latches, either as delivered ex-factory or from wear over time.

A partial but effective answer - pioneered in the US where construction appears more basic, and so problematic - has been the inclusion of hard-wearing plastic moving parts either as complete items or as inserted bushes to reduce noise and aid operation.


Rider/User Directed:
Whilst internal vehicle accommodation for the rider has become more comfortable over the years, with manufacturers offering improved hardware, and as the accompanying graphic depicts, at the top-flight sponsored level is most luxurious, as ever, comfort typically accord to affordability.

The young 'pony-club' rider operating on a shoe-string parental purse will willingly 'rough-it' more or less “in the hay” with crude adaption, or in the sleeper-cab of his/her old truck if that fortunate.
The incrementally older person seeking incrementally greater comfort.

Thus the horse-box commercial sector has grown around these requirements, from nigh-on worn-out 1980s vehicles to late truck model conversions to high content expensive 'super-boxes'.

Reduced Ability Users:
However, as previously seen, the thanks to a more enlightened attitude by many nations toward physical disability, there is today a greater involvement of physically less able people in equestrianism than ever before; the pinnacle being the paralympics.

Although it may appear odd to non-participants, many of those once able-bodied riders who have infact sustained serious debilitating injury whilst horse-riding are often frustrated by the fact that riding opportunity thereafter is limited. Obviously, the passion such people have for their beloved though dangerous sports does not deter them; often actually encouraging them with the motto “what is the worse that can happen now?!”

This then highlights the need for dedicated user-friendly accommodation and access to the next, or thereafter, generation of horsebox-camper.

To this end there may be an opportunity for forward-thinking firms to engage with equestrian-related and general disability organisations, with the input of disabled end-users.


Vehicle Directed:
Furthermore, pertaining to both able and less able users, some horsebox producers are recognising the importance of on-road use vehicle development, but more can be done:

This spanning:
1. Crashworthiness.
2. Towing Methods
3. Vehicle Flexibility

Crashworthiness:
Whilst the basic new vehicle from respected brands typically like Renault, FIAT, Mercedes, DAF, MAN and Volvo, will have passed international crash standards as 'chassis cabs', the inevitable fact is that in commercial vehicles the type of carried load, its internal fixing (or not) and the strength of the bulkhead between load and front driver/passengers is of critical importance.

In any relatively high speed crash (head-on or otherwise), crash conditions obviously alter the load from stationary potential to moving kinetic energy. Horses are effectively unfixed animals and pose threat as a thrown object to driver and passengers

To this end, it is feasible that any conducted research recommendations seek that standard bulkheads on horseboxes be strengthened, perhaps by way of a metal double-skinned full partition. Furthermore the insertion of an intermediate viewing window, whilst undoubtedly useful, in most cases reduces the crashworthiness capability of the intermediate bulkhead.

Instead perhaps a type of 'periscope' viewing method could be adopted, as seen on double decker buses, or more likely greater implementation of CCTV, as now used on larger horse-boxes.

Towing Methods:
A singular dedicated horse transport vehicle is, by most worldwide standards is still an expensive luxury, hence the wide use of trailers. These vehicles are obviously towed and each 'combination set' has its own inherent limits, these relative to the weight and power of the tractive vehicle, its own maximum towing weight, the weight of the trailer, the weight of both vehicles fully laden and critically the load capability of the hitch/coupling itself. An overall matched equation is necessary and so governed by regulations, so understanding the what one US trailer manufacturer refers to as 'the weakest link' is important.

Differing towing needs, from low to high masses, have evolved different hitch/coupling types, so as to arrive at an optimal capability.

Smaller vehicles such as cars and light SUVs tend to use the 'ball and cup' or 'ball and tongue' arrangement, as seen on light caravans and light utility trailers. Though often called 'bumper hitches' in the USA, the hitch mechanism is actually bolt fixed, or welded, onto the vehicle's rear frame or main substructure (as per vehicle manufacturer's specification).

In the US this basic method was evolved by the Society of Automotive Engineers to have different hitch strengths span increasing towing demands (weights), giving four separate classes. The couplings can be of fixed or removable types, the latter with a hollow 'receiver bar ' into which the 'ball mount' can be inserted and secured.

Higher weights demand an alternative, better 'captive hitch' method, so the use of the 'load-levelling hitch' in standard 'ball and cup' towing which better balances the load and often has a more secure fixing with sway bars and safety chain. And there is as seen the '5th wheel' arrangement, which centres a portion of the towing load between the tow vehicle's rear and front axles.

Unfortunately, whilst horse owners do much to try and best secure their precious loads when travelling, almost inevitably coupling failures do occur between vehicle and horse-box trailer, typically because of a worn-out coupling or an incorrectly specified coupling which though previously capable reached its limits. Such failures can result in devastating results for the carried horses, the driver and other road users, with the animals probably injured and possibly made lame or indeed so badly injured as having to be 'put down'.

Such instances then raise the issue as to how horse towing can be made more mechanically 'fool proof'.

To this end investment-auto-motives believes that reference to other towing methods used by the military and agriculture/heavy-haulage/rail sectors, may provide better solutions.

Military (NATO) standards demand use of the 'Pintel-Lunette' method of coupling/hitching, in which a lockable open and close pincer type tow hook is used to securely clasp inside a strong circular ring at the front of the trailer.

Agricultural, Heavy Haulage and Rail standards demand a 'Draw-Bar' type of coupling in which the weight if the trailer is effectively self contained upon front (steering) and rear (fixed) axles. Thus the 'draw-bar' acts as little more than a fixed connection.

Of these two alternative options, it seems more feasible that the horse-box (and livestock) trailer industry be encouraged – and compelled by regulation if necessary – to adopt the more fool-proof 'Pintel-Lunette' type of towing method.

In this regard over the decades America's towing culture has seen the creation of what might be termed 'hybrid pintels' by which a more sophisticated tow-ball frame better secures the 'cup' or 'tongue', beyond the capabilities of the standard 'lockable' ball hitch.

Vehicle Flexibility:

For all but the full-time professional riders and/or those without other responsibilities and wealth able to devote themselves full-time, horse riding is for the majority a part-time activity.

This means that any high cost capital expenditure must be made as rationally as possible, with regard to alternative uses.

This flexible, multi-purpose perspective has long been recognised as a USP by various trailer makers which offer detachable horse-boxes from the trailer chassis, so able to use the trailer independently and able to temporarily house one or two horses safely, warmly and securely within what is effectively a moveable mini-stabling facility.

Given the cost and relative limited use of integrated and converted horse-boxes, investment-auto-motives questions whether such a 'detachable pod' system could be applied to van and truck chassis.

In global shipping and rail we see the transportable 'pod' that is the modern container, and a similar system of smaller containers and container frames used in military logistics, though of course these require specialist handling equipment of respectively large external port cranes and mini-cranes on-board the army truck.

However, adopting the 'drop-down' support leg system - as seen on commercial articulated trailers and those US camper bodies which slot into a pick-up truck bed – a similar set-up might feasibly be applied to horseboxes; creating the 'dismountable horse-pod'.

Removable boxes have become increasingly standard offerings for farm livestock trailers, so as to allow for the trailer to accept other types of pods or run in an open condition. As dedicated units, both integrated vehicle based and trailer based horse-boxes are conventionally single use items.


Jumping Philosophical Hurdles -

However, the tradition, social connotation, and indeed swathes of previous expenditure spent upon traditional attire, 'tack' and general equipment – such as horse-boxes - may mean that there is a high degree resistance to technical and welfare progress.

But, assisted by agents such as the British Horse Industry Confederation's recognition and remit to maximise the 'equine economy', new technology adoption is being progressed by the sport's leading lights. Which in turn indicates that with such validation greater progress yet can be made through its trickle-down effect into mass use; a good sign for all; riders, horses, innovators and manufacturers alike, and indeed opens their minds to tomorrow's advanced, yet pragmatically created, solutions.

[NB Head protection safety standards are now engrained worldwide with ASTM/SEI in America, EN in Europe, PAS in Britain, and other recognised systems in Australia-New Zealand].


Holistic Re-Assessment -
“Thinking Inside and Outside the Box”

Undoubtedly the best manufacturers seek to gain a competitive product edge by understanding and solving the very real needs, wants and desires of the owner/user, many practical solutions highlighted in the various sales presentation videos seen on company websites or on youtube.

Yet there may very well be many conventionally designed items and areas which could benefit from individual and collective holistic re-assessment, so giving marginal to breakthrough, evolutionary and possibly revolutionary gains. In turn providing greater purchase incentive and thus unit margins and overall profitability.

This echoes a call from equestrian magazines (seen again in a recent 'Horse and Hound') to better develop all types of tack, especially that which has been virtually unchanged for decades and indeed centuries. Whilst the rider has the choice to wear (or not) the newer innovations such as helmet vs traditional 'cap', hard shelled or even pneumatically inflated vest vs standard non-protective clothing, the animal has no choice in the matter.

Indeed, here in Britain, given the matched manifesto by the British Horse Industry Confederation for animal welfare and strategic long term development of the equestrian industry, as the 'pinnacle body' it should perhaps lead such an initiative.


Anglo-Continental Rivalry in Global Trade -

Such an initiative undertaken to halt possible complacency from British manufacturers, to maintain a competitive edge in domestic sales and to improve competitive position within what appears burgeoning export market, especially regards EM countries, over the coming decades. Specifically versus the smaller number but technically very strong band of German firms.

Whilst Ifor Williams Trailers have secured a contract from high profile Middle Eastern clients recently, it is noted that Arabic buyers have previously purchased high value bespoke horse-coaches from France and Germany. No doubt Britain has has its past success here too, but must stay alert.


A New World Equestrian Economy -

The new economic order, which better balances the financial fortunes of East and West, of South and North, will continue to see ever more newly created US$ billionaires and millionaires. As well as of course the upper tiers of the new middle classes eventually seeking to mimic the lifestyles and apparent sensibilities of the uber-wealthy.

This then bodes very well for equestrianism given its connotations and the fascination (true or apparent) by those who are fortunate enough to be able to own, ride and seek to participate in the various sporting events, with perhaps even re-emergent local versions from days of old re-invented to befit the cultural landscape.

One example being the by now well established clothing label Shanghai Tang, having highlighted its own fashion inter-play with Polo as what seems a knowing precursor to what lays ahead for equestrian influenced Asian fashion.

Given that Polo was indeed born by the Mongol people who rode the Asiatic plains, perhaps at last the game will re-find its deeper authentic roots in Asia, before the Jodhpuri's and then English adapted it.

With that and similar re-imagined culturally historic associations of the horse across the globe comes seemingly expanded commercial opportunity: from the evolutionary development of the various types of horse-box, to the re-found cultural variety of hand-made saddles to the near global ubiquity of the men's and women's polo shirt as the summer leisure garment.

It is only natural to assume that the equestrian sector and affiliated interests will grow via a rise new and old race-course attendances numbers, itself fuelled by fashion, excitement and the gambled flutter, that as an off-shoot or direct parallel, the myriad of other equine pursuits become popular thanks to the entertainment aspect of 'vaulting' and 'reining' (thought to be developed for international appeal), dedicated satellite TV channels, new media access and the desire for urban based populations to re-connect with (a hyper-real) version of perfected states of nature.

[NB it may be likely that the leaders of equestrian sports seek to mimic the global expansion of the F1 business model. Whether more modest or as popular remains to be seen].


Constructing the Future -

Even as the global horse-box sector grows and broad income streams rise, there will be the desire and investor demand of profit motivated firms to maximise efficiencies and profitability.

In doing so such expansionary firms will seek synergistic efficiencies vertically, horizontally and diagonally throughout their respective national value-chains and critically as part of wider efforts to create an extended chain internationally in lower cost, high potential markets.

In order to better compete on the slowly growing global stage the likes of Britain's Equi-Trek, already promoting itself as the country's largest horse-box manufacturer, is keen to demonstrate its pan-European service base so as to be better recognised by not only potential European customers, but also by those high disposable individuals, syndicates and companies from EM regions (beyond Singapore, Hong Kong) who themselves attend European events.

To this end European producers are reaching-out beyond historic confines.

Yet typically the national growth agendas of BRIC, CIVETS and now MINT countries obviously intent to both offer internal market access to American and European firms, whilst simultaneously gaining technical and commercial learning in the process to promote new business models within their own territories.

So any international commercial agreements to be seen will also see a marked change in the broad sector's own development.

International Sector Development -

1. Licensing of Manufacturer
As seen many times before in the truck and car worlds, in the first instance to grow a new sector or sub-segment it is usual that the emerging country will seek licensed manufacture of a previous generation product.

This necessitates the 'lift and shift' of related presses, tooling, jigs etc, so as to effectively transplant a complete truck or car factory.
But given that today many EM countries have already long been through this process, and indeed the major ones have moved onto co-production of modern or near-modern vehicles with, plus the fact that horse-box construction methods and their internal fitting-out are not typically overtly complex, yet very labour intensive, all means that potentially new EM Horse-box firms start on a relatively level playing field vs the western incumbents.

A firm could start afresh to serve its own an neighbouring nations, but it is a generally accepted fact that to properly transplant and absorb such a new equestrian culture requires a foundation of international relations and secure trade connections.

To this end, it seems unlikely that beyond basic livestock trailers, any newly created EM firm would seek to serve such a prestigious marketplace, when perceived 'branded quality' remains at the fore.

2. Contract Manufacture
Thus more likely is the initial step of contract manufacture, wherein a local firm with the right skills base can undertake the manufacture of products on behalf of European and American premium brand companies.

The agreement would most likely need to be organised around the ability of the new company to source the basic construction materials of steel and aluminium locally, whilst probably sourcing specialist interior items (woodwork, heating and ventilation [HVAC], mini-appliances and electrical circuit control panels) from established Western and/or Japanese suppliers.
This would then provide a first step for the indigenous country to create a sector serving equestrianism.
3. Co-Branded and Re-Branded Products
When the indigenous EM firm has gained enough experience and capabilities, the next natural step would be to create co-branded products, typically priced below the previous 'premium' example, so as to access a wider local, aspirant yet nationally loyal, buyer base.

This also opens the opportunity to cross-sell such vehicles back to what was previously the lead partner company, so as to access an offer less expensive products in their own homelands and locales, typically using a sub-brand label of its own origin.

4. Shared Areas of Core Competence
Such international JV agreements obviously recognise the basic business need to locate operational activities where best suited.

Recent years have seen a repatriation of manual based employment back to the West after 2 decades of 'off-shoring', as the basic employment costs in EM countries rose and so eroded much of the previous cost competitiveness. (Today we see the machinations of FX currency wars as all seek to effectively devalue local currency to gain global advantage). But whilst job repatriation has occurred, the opportunity to utilise the new swathes of young and so new labour capacity across EM nations remains; thus we currently witness not a tidal reverse but re-balancing of international labour markets.

To this end, those EM countries with desires to grow their cultural sporting prowess to gain international exposure and respect - as with case of F1 motor-racing – and yet eager to employ and technically train their young, have and will continue to strengthen relationships with international cooperative bodies (such as the FEI – Federation Equestre Internationale) whilst continually moulding their own areas of core competence which can be commercially accessed by Western horse-box manufacturers seeking a wide international footing.

5. R&D and Sourcing
As mentioned there is a need - on safety, convenience and comfort grounds - to holistically re-examine and so extend the design parameters of today's horse-box; in both single converted vehicle form, single coach-build vehicle form and in various trailer forms.

Such research will create new evolved and revolutionary solutions, and critically will provide those innovators with not just European or American local market advantage but be seen to set the technical standard globally.

The ability to do so will maintain the need for any newly established EM horse-box company to source 'differentiating content' from the West (or Japan), and indeed create the desire to grow commercial agreements with these leading edge firms.

Indeed, America, Europe and Japan could and should better create bio0science based foundation by which technical advances to aid individually the horse, the rider and the horse-box can be examined and progressed.

This will then provide a basis by which all new EM firms will need to continually source from those notionally post-industrial countries.

6. Sector Consolidation
Horse-box producers to date have been typically a western sub-segment of the far broader automotive, truck and ancillaries market. Such producers – as seen with Britain's Oakley's long history - born from personal, local or regional need and so opportunity.

In both expansion and contraction periods of the economic cycle there is often reasoning to consolidate various firms, often under a specialist umbrella holding entity, so as to maximise operational efficiencies and market coverage

This dynamic has obviously true of North America, but with an important difference in product type, the Trailer being typically far simpler to construct than the Euro type Integrated Horse-Box.

Thus whilst the likes of America's Universal Trailer have been able consolidate other firms and brands into its own sizeable holding, the most of the prevalent British and German manufacturers, have instead maintained a steady though growth confined course.

This achieved, indeed hard-won, through cautious book-keeping and capex, and have been able to retain their understandably much valued independence, whilst seeing other overly ambitious 'johnny come lately' firms over-extend with debt, fail to fill the required order-book, and so fail.

However, the global economic re-ordering that has emerged over the last two decades, and take prominence since the 2008 financial crisis, has given greater credence to the idea the for western firms the future is inevitably international and global in scope. Hence the renewed ambitions of top-tier well established horse-box firms which will undoubtedly maintain a steady, cautious but optimistic approach to foreign trade versus those less risk averse newer financially leveraged firms.

Vehicle and Manufacturer Evolution -

It is believed by investment-auto-motives that following perspectives will be the investment drivers over the next 20 years or so.

A. Premium/Bespoke Horse-box Production (British/Europeans)
B. EM JVs Create 'Foreign Second Tier' Brands and Companies
C. Vehicle Interior 'Long Life' Convertibility (maintained residual values)
D. Chassis based Pods (reduce weight, aid resale)
E. Cross-Fertilisation with the Motor-Home Sector
E. Improved Trailering Safety (better hitch type adoption)


Conclusion -

The horse-box segment, as with any industrial sector, is simultaneously both simple and complex to doubly grasp the visible trunk/branches which reflect the primary business dynamics, yet also grasp the invisible subtle root system which provides the life-blood of the industry.

This sector sees an interplay of many often conflicting influences, from the engrained cultural connotations of heritage and tradition, to the opportunities that new re-found horse cultures that global participation brings, all the while the single entrepreneur, the established horse-box company and the macro-overview of private equity interests seeking to both forge and benefit from the inherent domestic, regional and worldwide trends.

The commercial potential of equestrian related commerce, and specifically the horse-box, is not quite limitless, but does offer a steady trot business model for those best in class.



Friday, 6 September 2013

Companies Focus – Global Autos 11 – “Coupled Ratios” Analysis, During Current Jitters.


The previous two weblogs sought to convey the words of wisdom of the last century's renowned investors, of varying value-driven long termism, growth-driven medium to long termism and speculative short-terminism; a few able to employ all perspectives.

This weblog returns to reviewing the 'Coupled Ratios' of the eleven major auto-manufacturers, and with it the intentional value-orientated perspective that serves as its fundamentalist 'bottom-up' foundations.

This Q2 results derived web-log intentionally arrives relatively late, given previous stock-market nervousness, optimism and returned skittishness since late May, so as to relay a basic perspective, whilst present debate centres around CAPE derived valuation levels and national debt ceilings (once again) in in the US, the improved outlook of much of Northern Europe, a returned focus into a positively undervalued Southern Europe, aswell as the idea of possible 'bottom-fishing' across various EM regions.

However, with past and present value-seeking best serving over the long-term, today investment-auto-motives would be remiss as to not re-highlight the all to obvious important influence of immediate macro-level issues. Such as the possible disruption from a UN (or indeed non-UN) sanction Syrian strike, and the fact that major EM nations are still grappling with individual devaluation effects verses the $US, given the reported exodus of liquidity with the talk of US Fed 'tapering'.

[NB. Informed observers will note how the 'global economics story' can be shifted given its origin. perhaps the most pertinent being the positive devaluation effect for the US previously seen with QE tranches aiding debt devaluation and stock-market fervour, verses a negatively spun story of devaluation for India, Brazil, Indonesia, Turkey etc.

The seeming fact is that such a parallel EM experience will only serve to strengthen EM intra-trade ties and indeed acts as a partial 'de-coupling' from the notionally advanced nations; hoping to mimic Japan's experience over the last year, possibly using domestic QE to add to devaluation as necessary.

It substantially benefits 'foreign earners' with sizeable positive FX effect; aswell as providing investor impetus internally to the best placed domestic companies which enjoy mass-favour, any political influence and now a major pricing advantage versus importing foreign rivals. Whilst with potential internal inflationary effect also, though arguably artificially, re-strengthens growth levels. Thus the EM stock-markets outcome should be highly positive; as many mid-far horizon investors will recognise].

So as to maintain similarity the following text is essentially based upon a facsimile of the commentary format provided previously when last reviewing 'Coupled Ratios' for the year's first quarter.

To re-iterate, the methodology devised by investment-auto-motives uses complementary statistical measures and balance sheet/cash book figures, to provide a set of four dual-aspect graphs.

Each graph simply conjoins two standardised assessment criteria across both 'x' and 'y' axis, within which an intentionally conservative 'investment window' is shown. Its own frame governed by the standardised metrics pertaining to the lower-risk investment spectrum.

The assessment criteria spans

1. Market Valuation Ratios
2. Profitability Level Ratios
3. Liquidity Level Ratios
4. Debt Level Ratios

This method, whilst spread-sheet originated, provides a most useful overview when graphically depicted, typically illustrating the respective leaders, middlings and laggards.

The information sourced obviously comes from real-time/near-time data providers and Q2 2013 earnings reports (Q1/FY 2014 for Japanese firms).

It must once again be stated that those auto-makers with greatest European exposure – and so contracted sales – continued to provide only scant financial data; once again especially so regards the critical issue of operational cash-flows and capital expenditure.

Once again, to partially overcome this vacuum, assumptions have been made using calculated proxy data; so providing approximation where seen to be feasible

It should also again be stated that whilst Q2 2013 figures are hardly fresh at the beginning of September, the notion is that stock-markets have during this period are 'settled' well, and so providing a inference base before Q3 figures are reported.

[NB In past web-logs the investment windows were intentionally of a constrained, conservatively restricted size, reflecting the fragility of western and global economies and associated vehicle markets.

However, as liquidity finally enters business and consumer spheres – not just retained in capital markets – the PMI sits steady over '50', housing regains traction, and general B2B and B2C sentiment eases, even with the recent dip in corporate earnings, that overtly conservative investment window stance by investment-auto-motives has been slightly eased to mirror broader 'flowing capital' conditions.

To this end the P/E vs P/B window has been marginally enlarged ].


1. Market Valuation Ratios -

This measure combines P/E and P/B figures, and uses September data.

Those companies placed within or very near the extremes of the allotted 'investment window' are:
VW edging notably higher in p/e terms but near static on p/b (at 4.75, 0.95 respective 'co-ordinates'), Hyundai Motor expanding (at 2.7, 0.46) increasing both values, with both companies well inside the expanded window. Peugeot SA saw a notional decline on p/e (at -0.17, 0.42), so sat just beyond the boundary (but it should be noted that the previous calculation was based upon 'early-bird' investor sentiment then expecting reduced cash-burn and a mid-term turnaround0.

Previously in Q1 on the borders of the previous smaller investment window sat Renault and Daimler. However, even with an expanded window, Renault slips away given its increased p/e rating – itself indicative of higher risk early-bird sentiment – but Daimler with reduced p/e and slightly grown p/b (at 8.6, 1.4) remains close by the 'window frame', with BMW seeing similar values (at 9.2, 1.5).


Floating beyond the expanded investment window, at around the x10 p/e level sit Renault (at 13.7, 0.64) though a nominally richer p/e presently well under book value, with at near book value is a static Honda (at 14.2, 1.0). FIAT sits 'at book' but with higher p/e (at 21.0, 1.0). The remaining statically positioned outliers are Toyota (at 12.2, 1.2), GM (at 12.2, 1.7) and Ford furthest out (at 10.6, 3.3)


2. Profitability Level Ratios -

The measures herein are Profit Margin % and Return of Equity %.

Well within this unchanged 'investment window' sit the previous inhabitants of Hyundai (at 9.4%, 19.8%) so virtually static, Volkswagen (at 9%, 23.7%) slipped slightly on both measures, and BMW (at 6.8%, 17.4%). New entrants by way of Daimler (at 5.8%, 21.0%) growing both measures markedly and well inside the boundary, whilst Toyota (at 5.4%, 11.1%) positively nudges to sit on the investment window frame.

Below the window on similar profit levels but different return on equity levels are: Honda (at 3.5%, 7.7%), GM (at 3.6%, 13.5%) and Ford (at 4.2%, 33.2%; of which Honda and Ford were effectively static whilst GM contracted slightly.

Remaining are Renault (at 2.6%, 4.3%) with a notable Q2 contraction in both measures, FIAT stayed effectively static (at 0.4%, 12.3%), and Peugeot (at -8.5%, -44%), so 1% improvement in profit and -1.5% reduction in return on equity.


3. Liquidity Level Ratios -

The measures used are Current Ratio and Operational Cashflow Ratio.

[NB When necessary the 'CFR' is derived from the acknowledged calculation for Operating Cashflow...OCF = EBIT – (CapEx + financial investments costs).

Seen maintaining their respective positions within the investment window are: VW (at 1.0, 5.0) though notably declined from previous buoyancy, and BMW (at 1.1, 3.2) showing slight improvement.

Entering the investment space are GM (at 1.3, 6.0) so showing major OCF improvement thanks to its pick-up trucks, and Toyota (at 1.1, 2.5) enjoying the pricing flexibility of the devalued Yen, but the most impressive entry goes to Daimler (at 1.2, 3.8) highlighting its leap from previous negative OCF thanks to divestment of what was a draining EADS, improved platform economies giving its new compact car range and a healthier truck division

Leaving the arena is Hyundai (at 1.7, 1.8) caught by its domestic market slow-down and (as previously highlighted by investment-auto-motives) increased competition across the US and Europe.

Outside the window are: a statically placed Ford (at 1.65, 2.0), a strongly positively repositioned FIAT (at 1.4, 1.0) out of what was deep negative OCF, similar but smaller positive improvements with Honda (at 1.3, 0.2) and PSA (at 1.0, 0.2). However, Renault saw marked decline into negative OCF territory (at 1.0, -1.9).


4. Debt Level Ratios -

The measures herein are Liquidity and Debt levels. (The former includes available credit lines).

To aid immediate assessment, the graph is segmented into five distinct areas, pertaining to liquidity to debt ratios of at or under 1:1, 1:2, 1:3, 1:4 encompassing the 'investment window' and an area beyond this boundary.

Within the 1:2 segment, GM rises strongly in cash holding and debt reduction, to the better side of the area (at $34.8bn vs $43.1bn, from a previous $27.9bn vs $52.3bn), FIAT too improves within the same area (at E21bn vs E28.5bn, from before E11bn vs E29.28bn, but Renault moves most impressively (at E21bn vs E28.5bn, previously at E11.35bn vs E33.02bn).

Within the 1:3 segment, Hyundai enters having fallen from the superior area (at E17.99bn vs 49.55bn, formerly at at E13.65 vs E31.63) seeing increased liquidity subsumed to increased debt, PSA's standing slips (at E11.8bn vs E32.55bn, from E17.5bn vs 32.55bn) highlighting previous cash-burn during Q2, whilst more impressively Ford gains (at $37.1bn vs $106bn, from before $24.18 vs $107.6bn), showing small rise in debt against over 50% improvement in liquidity.

Within the 1:4 segment, VW shows slight improvement (at E25.83bn vs E99.62bn, from previously E22.5, E99.62) showing pro-liquidity management, Honda weakened (at $14.48bn vs $66.27bn, previously at $15.33bn vs $62.19bn) losing some liquidity and adding to debt. Toyota and Daimler join this group, Toyota (at $46.15bn vs $187bn, previously at $30.73bn vs $179.57bn) demonstrates a 50% increase in liquidity thanks to 'Abenomics' and boosted US sales with proportionately lesser addition to debt, whilst Daimler nudges onto the investment window boundary (at E18.54bn vs E78.4bn, against E E17.7bn vs E78.74bn in Q1)

BMW (at E12.76bn vs E69.6bn, against E11.3 vs E70.44) still remains outside the broad investment window.


Results -

Valuation Ratio :
Hyundai, Volkswagen
(with BMW and Daimler close too the upper boundary and nascent Peugeot close to lower boundary)

Profitability Ratio :
Hyundai, Volkswagen. BMW, (newly entered) Daimler and Toyota on the boundary
(others static or contracted)

Liquidity Ratio :
Volkswagen, BMW, newly entered GM, Daimler and Toyota
(FIAT showing fast approach toward window)

Debt Ratio:
GM, FIAT, Renault


Ranked Orders -

The following shows the obvious ranked order of 'investment window' appearances.

Four Windows: None
Three Windows: Volkswagen
Two Windows: Hyundai, BMW, Daimler, Toyota, GM
One Window: Renault, FIAT


Conclusion -

Look closely at the positional dynamics of the Automotive Global 11 and between Q1 and Q2 2013 and though the quarter saw generally declined growth – given previous quarterly spurts - overall the general picture has shifted toward more levelled conditions.

From a global perspective, consumption power of more credit-accessible, more confident returning western individuals and businesses continued to fill the post 2008 'volume vacuum'. Thus firstly aiding those American and Japanese mainstream players which had suffered, now seeing similar effects in Europe.

Volkswagen maintains ownership of the 'crown' having seen its closest investor rival Hyundai slip somewhat. Given the importance of the macro-economic cycle to all players, in cycling terms although VW maintains itself wearing the 'yellow jersey' the peloton behind has grown in numbers and force, thus adding new pressure upon VW and a presently slipped, previously strong, Hyundai.

Now that central bank liquidity is flowing through the improved transmission mechanism of international and national banking, and indeed allowed many auto-makers to expand their captive finance houses to act as 'new banks', the previous well constructed mixed advantage of product quality / product price, maintained residual values and vitally strong balance sheet will be eroded by re-capitalised competition seeking a market-share rebalancing.

But unlike the voracious past leading up to 20008, far greater cross-cooperation will be ongoing across manufacturers and their traditional and non-traditional suppliers so as to amortise research, development and production costs; and as seen with Japan's segment-bias approach by Toyota, Honda and Nissan in North America, though the overall 'market pie' is enlarging, few manufacturers are in the position to 'eat their competitor's lunch'.

Hence, today's and tomorrow's strengthened demand, better plant utilization rates and accordant capacity growth, vital continued cost containment, suppressed platform engineering costs with high-value IT content, and subtly understood territory's based on core competencies bodes well for all eleven global producers.

And as positively for the long-term horizon - especially possible emergence of new 'auto-multi-nationals' - the currency and reforms shifts that should engender a new revitalised economic phase for East and West, South and North alike (see below)

From the investor's perspective, attuned individuals and private equity have and will continue to like the 'early-bird' turnaround opportunities, whilst pension and insurance institutionals will be happy to seen global auto companies back on their historical growth track.


Post Script -

The previous post-script mentioned that the West's previous massive economic disruption post 2008 had played to the advantage of those lower-cost auto-makers which could leverage both large scale low-cost domestic production for export with a broadening global manufacturing and sales foot-print; able to strongly vie against what had been a floundering old-guard producers.

It then noted that as the western world slowly returns to a more normalised 'new-norm' – with renewed lowered cost-base climate - those firms which by default gained between 2008 to 2012 would face greater competitive headwinds. So raising the spectre of previous winners lobbying home governments for greater FX 'flexibility' (depreciation), in order to match the deflationary competitive advantage already seen to work in America, Europe and now Japan.

On the surface much the same effect has come into being via the much reported 'EM capital flight', so avoiding an explicit state of hostile 'currency wars', but positively providing renewed vigour centred upon domestic investment and consumption but with pan-Asian effects.

Of note regards vehicle production and associated costs is the fact that the devaluation of the Brazilian Real will assist the foreign exportation of primarily FIAT and VW vehicles. Whilst the substantive drop of the Indian Rupee will primarily assist the Nissan-Suzuki JV internationally and TATA regionally and domestically. Indonesia's lowered Rupiah helps Japan's local transplant factories. However, S.Korea's Won whilst devalued against the $US between March and late June has re-strengthened back to the March level, so leaving it comparatively strong against Asian peers; notionally to the detriment of Hyundai Motor unless it can demonstrate itself as truly on par regards quality and pricing with American and European rivals, though the FX headwind may be off-set by China's affection for its brands.