Oil Prices and Car Dealers:”Peak Oil Demand”

If oil prices stay low, expect a clash between government’s emission and environment aspirations and car users financial self-interest. Low fuel prices make switching to alternative fuelled vehicles less likely. So, the subsidy costs are likely to be higher and last longer. But that is unlikely to deter policy makers . They see larger prizes: opportunities to re-shape global car production and grab a larger slice of profits for the future and to reduce the capital flow to the oil-producers. Electric cars is the game changer of the 21st century.

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Oil price drop and GCC new car registrations

This article is the first in a series on the impact of energy costs on car retailing in a dynamic automotive world.   Oil Prices impact on car sales so, for once, the tabloid headlines are more or less accurate: since mid 2014 up until the present (July 2017) oil prices have halved while overall production has been constant. All of OPEC’s attempts at production restraint to support crude oil prices have been frustrated by either non-OPEC members unwillingness to risk losing market share or the exports of US-based ‘frackers’. OPEC seems to be caught in a bind: if they cut production to raise prices, they bring more US shale rigs back into production because the oil price moves above their marginal cost of production. If they don’t cut production, the price falls and they lose money in a fight for market share. In any event cost-cutting technological innovations have enabled shale producers to reduce extraction costs rapidly over the last few years. According to Wood Mackenzie, the oil analysts, only 4% of the worlds oil output is unprofitable at $35 a barrel because shale oil wells have reduced cost by around 40%. Their conventional counterparts by only 12% on average. ‘Frackers’ might not make much money but, at least, their cash flow covers their debt repayments so they continue in operation. The Wood Mackenzie figures are in line with a report from Citibank in December 2016 showing that the amount per barrel that most producers needed to receive just to keep the lights on, referred to as the cash cost point, was well under $30. The downward pressure on oil prices has been triggered by a range of factors – some of which are structural and enduring: extra production from shale oil, the Iran Nuclear deal, the strengthening US$ […]

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After the Arab Spring Part 3 – the outlook for car markets in the GCC

At the time,  the GCC markets seemed largely unaffected by the Arab Spring, apparently insulated by oil wealth and strong sovereign wealth funds, whose proceeds need only be shared among a small population. But, if you take a closer look there are two ‘blocs’ of states within the GCC measured by income per capita: the rich, UAE, Qatar and Kuwait; and the ‘relatively poor’ – Bahrain, Saudi Arabia and Oman. Those differences have great implications as each country deals with three important – and region-wide- market undercurrents: youth unemployment and renewed emphasis on employment nationalization programmes, accelerating modernization of the transport infrastructure and a changing landscape for personal consumer credit. Each will have an impact on the size and shape of GCC car markets. Moreover, the medium-term, region-wide political effects of the Arab Spring were also overlooked: the power struggle between Saudi Arabia and Iran; the split within the GCC over Qatar’s position; the struggle to control the entrance to the Red Sea at the Bab Al Mandab, which has underpinned the conflict in Yemen.

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The “Arab Spring” and car markets in MENA and beyond

Originally published in 2011. this paper was updated and re=-published in 2017   “Progress lies not in enhancing what is, but in advancing toward what will be”, Kahlil Gibran Only a few wise birds predicted the Arab Spring and its financial and economic impact. But, as it progressed, it didn’t take long for the immediate impact of actual regime changes in Tunisia and Egypt – and the threat of them in Bahrain and Libya – to become clear. Between the day the protests broke out in Tunisia in January, the price of oil (Brent Crude) rose from US$94.90 on the 4 January to US$116 a barrel in early March, its highest level since January 2009 when it traded at $40. Still off its $145/barrel peak of July 2008 but already worryingly high for European motorists and hauliers. Of course, while European governments wring their hands about the impact of oil prices, keep in mind that their taxes on oil consumption far outstrip the income to the oil producers. For example, in 2011 at current prices, the UK will generate about 1.8 times as much tax as the oil costs. In Germany it’s twice as much and in Italy 2.4 times in tax as the oil costs! But, if the price for long-term stability is only a few months of excruciating pump prices, many consumers might be willing to pay it. However, as we have seen, the human and financial costs turned out to be more expensive and enduring than that. 

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After the Arab Spring: Part 2 – the outlook for car markets in the Levant

The Arab Spring began in 2010 in Tunisia,North Africa and travelled eastwards. First, into Egypt and Libya in 2011. Then, in 2012, into Syria, in the Levant. And, in this part of the world, as governments, rebels, terrorists and infiltrators arrived, it has caused chaos. The modern Levant includes Lebanon, Syria, Jordan and the Palestinian Territories and – historically – Turkey as well. It has been described as the “crossroads of western Asia, the eastern Mediterranean and north-east Africa”. It fringes the eastern Mediterranean over a distance of 1,100 miles, with a population of 35 MN, excluding Turkey. The Levant economies share three common characteristics: they are net oil importers; they depend on other states or entities for their economic well-being – through remittances, exports or subsidies; and they share a politically unstable region. Consequently they are, more than usually, economically volatile and vulnerable. In addition, they share exposure to economic downside risks:global economic slowdown: the continuing Euro Area crisis, weakness of Advanced Economy Sovereign risks and the volatile oil prices.

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After the Arab Spring: Part 1 – the outlook for car markets in North Africa

The Middle East and North Africa (MENA) region has three distinct geographic and economic zones: North Africa, The Levant and the Persian Gulf. North Africa stretches over 2500 miles between Morocco and Egypt, has a population of over 150 MN and, excluding oil-rich Libya, has an income per head between $5,000 to $10,000.  Across the region between 15% and 25% of the population survive on $2 per day. The Levant fringes the eastern Mediterranean over a distance of 1,100 miles, with a population of 162 MN, including Turkey.  Income per head is higher at $6,000 to $14,000 and wealth is spread more evenly. Less than 5% of the population earn under $2 per day. The ‘jewel in the crown’ is the Gulf where a small population of nationals own two-thirds of the world’s hydro-carbon wealth. The population is around 70 MN, including ex-pats,  and income per head  – excluding Yemen  – ranges from $43,000 to $130,000. The 2016 average was $33,005. What is the outlook for vehicle markets in the MENA region? Faced with contrasting economic fundamentals – broadly, those who have oil and those who have not  –  the impact of the global financial crisis  has varied between countries and MENA zones. It  revealed structural weaknesses in both US dollar and Euro sovereign debt which increased the flight of investment funds into commodities, leading to higher prices  – in gold, grain, oil and many others.  In turn inflation, unleashed across the world, hit the poor hardest and North Africa has plenty of them. The relentlessly volatile oil price shows how bumpy the economic ride may yet be. It’s estimated that, just to meet the financial costs of social reform, Saudi Arabia –  and many other OPEC members  – need an OPEC price of $90 a barrel to avoid a […]

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2011 UK New Passenger Car Market Forecast

Since 1980 UK Recessions have lasted an average of 4 years.  If that pattern holds 2011 should see the UK economy rebound to its trend GDP growth of 2.5% – 3.0%. Will that actually happen? Probably not. This recession has been the deepest, excepting the 1930’s, with a cumulative GDP contraction of 6.3% . But, we’re now on the upturn – see the chart above. The question is, how long will it yet take? On current trends GDP will not regain its 2008 level until 2012.  Today GDP is back to where it was in 2006.  But, while construction, services and the public sector are at 2006 levels, industry and agriculture remain depressed. GDP did grow in 2010  – and the new car market benefitted  because consumers reduced their savings tempted by price discounting. It’s unlikely to recur in 2011. Most likely consumer spending will fall coinciding with a drop in government spending. Inflation is set to rise. Growth –   if it comes  – will be driven by building up stocks  of goods for export. With mainstream retail customers hoarding their money the fleet buyer will have to take up the slack. Will that happen?

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Pyramids, Voting Shares and Cross Holdings: Staying in Control in a family-owned dealership.

‘Born with a silver spoon’. That’s often how it looks to outsiders when a family-owned dealership passes successfully from one generation to the next. In truth, it’s usually taken a lot of hard work and hard bargaining for all concerned. In UK motor retailing, the dominant and most successful business model is the family owned dealership or dealer group. But, as a rule of thumb, only one in three family firms successfully make it to the second generation. Plus,of the one that succeeds, most grow very slowly. One reason is that many do not know how to attract new investment without losing control.  How do successful family firms structure themselves to overcome this challenge?

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The Currency Wars and UK Motor Retailers

With Ireland on the brink of a bail-out and the US arguing over Exchange Rates with China, some say we’re on the brink of ‘currency wars’. If the US gets its way, what might be the effect on UK dealers? And what if it doesn’t? Read the article to find out.

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Pendragon shares continue to drift down

Prior to issuing their Interim Management Statement in October, Pendragon’s shares were drifting downwards and stood at 19.0p/share. They bounced back for a week or two, but have now returned to the pre-Statement point, even though it had plenty of good news and some analysts rate it as a buy. With only one more year fo their refinancing programme to run, time may be running out for the current management to regain investor coinfidence. Read on to find out more.

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