The tour of those
functional areas recognised as the functional automotive corporate
innards has been completed; that journey having 'come full circle'
upon Sales and Services, the end-point to which the whole corporate
enterprise is ultimately dedicated. Thereafter the process invisibly
morphs into the early research aspect of Marketing, the essential
start-point for any organisation.
A lengthy journey
undertaken to give broad explanation of, and find new insight into,
the vital question posed at the very beginning of this multi-part,
extensive weblog topic...
….The critical need
to better exploit the complete automotive 'value stream' to avoid the
possibilities of either investment capital stagnancy or indeed
possible destruction; very real possibilities the apparent 'new norm'
of delayed and anaemic growth.
Since the financial
crisis eight years ago we have witness what could be termed 'yoyo'
economics affecting broad national and continental economies, capital
markets and so corporate confidence swaying back and forth as the
initial massive prime pumping of liquidity through economies and its
partial success has given way to 'on-off' governmental fiscal policy
and stimuli during the transition period away from 'melt-down' toward
a new normality.
Growth has indeed
emanated within the USA, the UK and latterly Europe – as seen by
the surge in auto-sales from their 2009/10 lows (the US now
effectively fully re-inflated at 17.5m units pa).
Yet as seen by US
employment rate volatility, whilst wholesale money markets operate
and the consumer credit taps have been re-opened (unfortunately far
too quickly back to sub-prime regards car financing) the national
economies of the western world are still not what might be described
as healthy, indeed still fragile.
The intended
trickle-down effect into the general economy has been delayed because
of the interwoven complexity of the 'global macro' and the effective
re-structuring complexity of a broad range of sectors and companies
(ie examples in the UK ranging from the remnants of 'old industry' as
with TATA steel Mill in Port Talbot, to the vicissitudes of the
service sector as with Serco Group).
Thus the US and UK have
enjoyed long continual regrowth in vehicle sales, but despite what
the auto-sector sales numbers illustrate as a seemingly re-attained
norm, it is unclear whether returned and returning vehicle demand is
fully sustainable at previous levels going forward.
It has been recognised
that every trick in the generic economics text book has been thrown
at the problem to try and kick-start growth, the catalytic
fiscal-monetary impetus prompting the re-emergence of previously lost
or delayed consumer demand; especially seen in auto sales given the
delay of the previous replacement cycle.
But such present glee
might provide a partially misleading picture, noted by industry
chiefs with near saturation of the USA car market. Having gained
strong traction there over the past five years traction they and the
investment community now look to a continued upturn in sales across
Europe to off-set slowed North American sales, with thereafter Latin
America and Asia.
Thus it is presumed
that a over-lapping series of demand sine-waves will booth even-out
and steadily grow global demand and so capacity into the future. With
also an expectation that any endemically structural demand loss in
Triad countries will obviously superseded by stronger new demand in
EM regions (Jaguar - Land Rover's recent mention of its new Brazilian
factory for 'Mercosaur' just one example).
Yet as experienced, the
immense socio-economic impact of the Financial Crisis, the European
Sovereign Debt Crisis and the scale of post-boom EM contraction has
had an undoubted impact upon the consumer consciousness of the older
and newer global middle-classes.
It is very possible
that an altered and more cautious mind-set might have become
engrained in individuals, families and communities globally. Not just from Birmingham, Midlands UK to Birmingham Alabama, USA, or more obviously
from Athens, Greece to Athens, Georgia USA, or Paris France to Paris Texas, but also importantly from to Sao
Paulo in Brazil to Sao Paulo Portugal. Those persons now viewing themselves as metaphorically burned by the turmoil of global economic
events hitting hard locally,. And so more hesitant to return to the past spendthrift behaviour of the 'good old days'.
Any definitive return
to any form of 'normal' would be illustrated by strengthening and
sustainable industrial and services productivity providing the
trickle-down value creation for their employees who in turn can draw
upon credit sources for vehicle loans and agreements.
However, consumers
themselves have also been caught in the deflationary spiral of recent
years with wages/salaries necessarily kept on hold and the rise of
short-term contracts to help stabilise many companies themselves.
Thus unlike the
post-WW2 productivity boom which itself was stronger than the
simultaneous expansion of lagging consumer credit, and unlike the
1990 – 2008 growth period based upon all oo easily available
governmental and corporate credit, today's general environment is
that of constrained governments, cautious corporations and inevitably
altered consumer behaviour.
It looks likely that
the under 35's have re-prioritised their far more limited
discretionary budget spending toward basic necessities (rent, food,
commuting) these painful costs off-set by more immediate
gratification (home delivered food, restaurants, clothes, health and fitness, and IT
hardware and software) coupled with 'scheduled escapes' (weekend
trips, holidays and extended global travel). The relatively high-cost
of a even a new average car simply seen as irrational, when other
options exist, from 3 and 5 year old used cars to rental vehicles to
local and app-based private-hire taxi cars to scooters, bicycles and
public transport.
Instead new car sales
supported by its original (post-WW2) demographic in the 35+ range,
with family responsibilities toward not just children but also now
longer lived parents and diverse activities, from taking off-spring
to better but further afield schools to trips to a new eco-genre of
garden centres.
Conversely, even with
present EM contraction and retrenched consumerism, with vast
'under-served' populations, global capitalism and accordant car sales
will rebound and indeed thrive in those already much developed EM
countries and the so called 'Pioneer' nations. The emergent and
newly emerging nations ready to enjoy in a very similar suburban
manner the fruits of sustained economic expansion. (This more than
ever thanks to the intra-nationalist trade and economic bloc pacts
made between EM nations to obtain greater independence).
Though many are
presently somewhat burdened by the US Dollar denominated national
debt made stark during the contractionary period, it is beholden to
for the success of global capitalism that those countries evolve
their own national capabilities and so develop a sustainable
trickle-down effect for general EM and indeed AM prosperity.
So yes global
car-makers will expect changed homeland and international dynamics in
overall sales splits and vehicle types, as the patterns of western
and emergent countries' automotive use and ownership changes.
Those in the west that
do purchase requiring 'value purchases' (as seen with popularity of
Renault's Dacia Duster) and more 'affordable fashion' (as with PSA's
DS brand). Whilst rising middling EM consumers span the full spectrum
of purchase preferances, from 'value purchases' (akin to that which
underpinned the old VW Gol) through to 'mainstream' (in the old Ford
Focus/Modeo/Taurus manner) through to increased displays of status
(the usual German badges having to fend-off both Japanese near luxury
brands – Lexus, Acura, Infiniti – but also now Hyundai's official
launch of the Genisis brand), as well as high performance niche sports cars.
And of course along
with this fundamental re-orientation of sales TIV per brand type and
vehicle type is the impact of those that best utilise increasingly
cyber-moulded and cyber-accessed consumerism; ranging from the
already entrenched new vehicle info-tainment reports by media outlets
to possibilities such as a new-car discount programmes via a points
accrual system through the likes of MPESA mobile payments.
As has become obvious,
car-makers' business models marginally but obviously under attack
from both sides of the sales and usage equation: with the likes of
TrueCar.com driving scale-based price discounting from dealers and
manufacturers, and the likes of Uber, Lyft et al re-creating user's
perceptions about the cost and availability of on-demand private-hire
cars. Why buy a car when you have one notionally a finger-click away?
Or if set on purchase, why go to a showroom at all?
Furthermore – as
predicted by investment-auto-motives – we can see just how the
Californian titans of IT and 'New-Tech' have created a new wave of
Merger and Acquisition. Aided by massive liquidity 'war chests',
closely aligned to local 'FinTech' - itself close to cyber-based
business disruptors - aswell as Wall Street's enduring connections
with established consumer durable companies, we see the effective
re-building of manufacturing and services sectors. With new
multi-dimensional (vertical, horizontal and diagonal) conglomerate
entities being formed.
[NB the recent
announcement by Elon Musk that he seeks to merge Tesla Motors with
Tesla GigaFactory and SolarCity to create a closely integrated clean
energy and mobility enterprise was itself 'scenario expected'. Though
the $2.7bn new share offering in the Motors company to absorb the
$3bn of SolarCity's debt is indeed grievous to in-situ Tesla
investors. Furthermore converse to Musk's rhetoric about eco-tech
government funding – as used to assist Motors – it looks likely
that this too will be reined-in. Yet, though as questionable as the
process is, this example of corporate integration is itself a prompt
for similar re-calibration across cash-rich and progressive corporate
America. The Microsoft – LinkedIn merger also illustrating the
American desire for continued IT dominance and influence, with yet
greater fusion of the perceptual and physical realms toward a new era
of soft-power global market dominance in the technologies and
solutions of tomorrow].
Thus inevitably into
the mid and long-terms, the shape of the auto-producer's business
model looks to be unlike the relative conformity and stability of the
past century.
Thus, given the
continued fragility of western and global economies and the changing
usage patterns of cars and their ownership, and the 'effect of the
net', those auto-makers that fail to undertake a surgical and
exacting approach to value creation will inevitably lose control of
their destinies to better attuned counterparts and new entities.
However, critically, as
previously explored, that investigative approach to value creation
must however not be simply biased toward the threat of the new in the
external world, but as critically, be directed inward to better
appreciate what true value may be extracted from within the
organisation.
The descriptive
functional tour sought to demonstrate why car-makers must learn to
become their own internalised 'self-disruptors', by questioning every
aspect of the internal value-stream within the both the individual
company and in a unified manner across the established sector as a
whole.
This requires objective
reasoning to underpin rational 'visioneering'.
Whether this be about
about:
1. Possible technology
transfers (as seen with QR codes)
2. 'Deconstruction and
reconstruction' of corporate methods and processes to better reach
organisational goals.
3. The possibilities
for new business incubation and spin-offs from such discoveries.
4. The co-creation of
new entities with external agents of change.
[NB as regards the last
point, not simply the obvious IT giants and up-coming highly
publicised disruptive minnows – many of which are in reality simply
seeking highly profitable exit strategies - but a deeper and better
structured collaboration with domestic and international academia.
A critique of the UK's
Automotive Catapult initiative useful herein as an guiding template]
Moreover, as engines of
worldwide economies, it is arguably beholden that auto-makers –
with suitable governmental assistance by way of tax breaks,
development zones etc - become a fundamental part of the solution
toward overcoming possible spectre of continued under-par growth.
This very necessary to
combat and the now very engrained ongoing general malaise amongst
many in a disaffected global populace.
As things stand,
exempting the likes of India, China, Indonesia and Vietnam, the
remainder of the world sits in what could be described as a 'yoyo'
economic circumstances, whereby much governmental intervention is
required to prompt powerful but short-lived capital statistical
growth, this affect over-whelmed by constrictive deflationary forces.
The ripple effect is that the real economy has not yet advanced beyond 'bottom-gear'.
Although previously
corporate returns were much improved at the EPS level thanks to the
reduction of inventories, reduced staffing levels, hard negotiating
and critically the use of profits for share buy-backs (so again
boosting the profit available to stock-holders), the reduced earnings
power of corporate America since Q4 2015 demonstrates the need to
obtain healthy macro-economic growth so as to not rely upon
short-spell micro-economic ploys.
This never more
required than today, with the tremors of Britain's referendum exit of
the EU shaking the market fundamentals around the world of both the
prime inhabitants of capital markets (insurance companies, pensions
companies, asset managers) by virtue of the heavy selling of both
banks and cyclical stocks experienced on 'Black Friday' (24.06.16).
Without such a 'path to
growth'; companies and their stakeholders - from shareholders to
employees to consumers - will continue to experience the present
unsettling 'yoyo' effect of choppy growth.
The actual consequences
of 'Brexit' are yet to be felt, but they will be invariably be
negative to a lesser or greater extent for international relations
and the Eurozone project; even if paradoxically because of the
dramatically dropped value of Sterling, Britain could looks more
attractive as trade partner to EU and worldwide businesses.
That helps UK based
auto-makers – Jaguar Land Rover, Nissan, Toyota, Honda, Ford, GM-Vauxhall, Bentley and Rolls-Royce – who will gain from the
immediate highly positive FX-effect, but only if we see sustainable
growth across Europe (and elsewhere) which is now affected by the
concern of EU-wide disintegration.
And it must be
recognised that for most of those players (except JLR) the UK is but
a single manufacturing location within their still shaken global
empires.
Thus to counter any
lost potential auto-makers must continue to reduce costs by driving
conventional efficiency gains from functionally within their
value-streams and should undertake 360 degree cost and productivity
regimes from the ground-up – critically staff multi-tasking (from
office cleaning to cross-learning of roles).
Just as standard
practices should be reconsidered to maximise manpower utility for the
corporate common good, so in such a new and open (almost 'campus')
climate, exploration must be made as to how the corporate machine can
better operate cross-functionally and externally to revolutionise the
visible and invisible vagaries of engrained practice.
The impact of external
disruptors has “set a cat amongst the pigeons” for auto-makers,
and as the threat became ever more tangible, the pigeons have indeed
set themselves on a path of new world reformation.
The institutional
investors in GM, Ford, VW, BMW, Daimler, FCA, PSA, Renault-Nissan,
Toyota, Honda and Hyundai should hereafter act a greater inquisitors
– indeed in an pseudo activist manner – as to exactly what
manifesto each has laid-out for continued semi-revolutionary change.
Those necessarily
confidential manifestos will inevitably be only rough commercial maps
given the reality of ever-changing circumstances, but more than
typical corporate presentations of the specifically financial or
specifically technical, should allow investors to better gauge
whether corporate strategy goes beyond the usual automotive sector
orthodoxies.
“Value Stream
Exploitation” remains the prime goal, recognising that into
tomorrow the river delta of the prime value stream will indeed be fed by
a myriad of internal and external inter-connected tributaries.
Just as “the
network-effect” has impacted upon the changing trends of
consumerism (street food to clothes to automotive), so there will
eventually be more proximity of cluster and real-time feed-back
prompts into Marketing, Design, Engineering, Production, Distribution
and Sales and Services.
The Intelligent
Investor will seek out the Intelligent Automakers; those who deploy a marriage of ever more Artificial Intelligence allied with ever more Insightful Creative Intelligence.
