Seven Global Car Maker’s KPI’s Part 4: Liquidity and Debt

click on an image or table to enlarge.   Financial management in a global carmaker is more complex than most. Carmakers commonly manage both global industrial businesses and global finance companies at the same time. They make vehicles and most finance vehicle purchase and leasing as well. As a result, managing large flows of cash and debt, and the risks associated with them, is their daily activity. How do we know if they are sound? The financial resilience of a business stems from a combination of the risks linked to three core financial concepts – liquidity, solvency and debt. Liquidity and solvency are often coupled but mean two different things. Liquidity is a firm’s ability to pay its debt obligations when they fall due. Debt obligations can be in any amount, but the key factors in liquidity remain the same: cash and timing. Solvency is a broader concept that measures if the value of the firm’s assets is equal to or greater than its liabilities. It makes two balance sheet measurements: One, are total assets greater than total liabilities? Two, are current assets greater than current liabilities? Debt, for businesses, takes many forms, from ‘plain vanilla’ term loans and mortgages through to bonds and complex structured financial instruments, but they too have common features: a repayment schedule; a cost; a consequence and a risk. To start with analysts assess these core financial concepts using ratios. Two common ones are Current Ratio and Financial Leverage. If either of these gives unusual results, they lead to more ratios used to uncover further facts. So, how well did our 7 car makers do against these two ratios? Current Ratio (Current Assets/Current Liabilities): In 2016 BMW’s Current Ratio returned to its long term average for the last decade of 0.98:1. It rose in 2009, when […]

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Seven Global Car Makers KPI’s Part 3: Profitability

Global carmakers have never had it so good and so bad at the same time. Being positive, the global car market is growing and they have never had more potential for profitable business. Being negative they have to keep their investors onside while spending significant sums on untested technology and new product concepts. The key issue is cash flow and the driver of cash flow is profits. This post – the third in the series – looks at where 7 global carmakers generate their profits today and the potential they have for generating profits in the future.

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Seven Global Car Maker’s KPI’s Part 2: Sales Revenue

Every successful business likes to trumpet its sales revenue. None more so than car manufacturers. But, while year on year sales growth gives CEO’s a warm glow, experienced professionals know that revenue alone tells an investor or stakeholder very little. This post explains what you need to know to interpret the headline sales revenue figures using the published results of seven global car makers as examples. It illustrates what else you need to consider to decide if a car maker is really doing well or merely appearing to do so. It’s part of a series of posts assessing the KPI’s of these businesses – Daimler, BMW, VW, Toyota, FIAT-Chrysler Auto, Ford and GM – for the turbulent 10 years from 2007 to 2017.

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Seven global car maker’s KPI’s Part 1: Unit Sales

  Few items of business news grab the headlines more than sales volumes and, whether you’re a consumer or an industry insider, that is never more true than when car sales results for a market or a car manufacturer are published. It’s not just the numbers themselves. Car sales volumes are used as key idicators of global and regional economic development, consumer confidence, consumer preferences and urbanization, to mention just a few. Two factors help to put global car sales figures need to be placed in context. First, the global car market is highly dynamic and is expected to reach 100 MN units by 2022. In that forecast the market in China doubles from it’s current size – from 28MN to 55MN units – and the US grows to around 22MN units. More surprising is that India moves into the #4 slot with sales of around 5MN just behind Japan. Second, the proliferation of modular platforms across manufacturers will reduce production costs and lead to significant model development. Carmakers are likely to produce a growing range of models in shorter production runs. Using the same platform should help them make more profits. But, this may not lead to a bonanza for shareholders. Most of the profits could be eaten up in the extra costs of developing new technology and rising raw material prices. As for dealers, if they’re to keep a role in the distribution chain at all, they will need to become savvy at reaching and trading with a wider range of segments. That will cost them more money too.

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How sound is your franchise? Seven global carmakers compared.

Car makers are skilled at assessing the financial and operational strengths of existing or would-be dealers and, for forty years, dealers have been rating franchises in terms of how profitable they are to invest in and constructive to work with. But, so far, dealers have not assessed car makers on their financial and business viability. However, in a time of unprecedented change and potential disruption to car-makers and the retail dealer model, perhaps its time for a change. This series of posts complete a financial KPI and business analysis of seven global car makers from the viewpoint of a dealer or other potential stakeholder: Daimler, BMW, Ford, General Motors (GM), FIAT-Chrysler Auto (FCA), Volkswagen Group (VW) and Toyota. This first post gives an overall ranking of each car maker based on the data. The subsequent posts look more closely at specific issues such as unit sales volume, sales revenue, profitability, liquidity and debt and operating efficiency.

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Will sub-prime car loans spark the next financial crisis?

Banks and newspapers have been reporting recently that the boom in new car sales since 2013 in Europe and the US is based on giving car loans, PCP’s and leasing contracts to ever riskier borrowers. But some pundits go further, suggesting that the bonds sold to investors based on car loans – so, called ‘ auto -asset backed securities’ (Auto ABS) – could face dramatic falls in value as a result of this risky lending. In that scenario, not only would new car sales feel the pinch, because auto finance companies would not be able to re-cycle their funds into more loans so readily but – as far as the most alarmist are concerned – possibly the entire global economy could face a new financial shock. They say that the trend in financing new cars with PCP’s and 5-year plus loan durations mirrors the mis-selling of ‘sub-prime’ mortgages back in the first decade of the new millennium. This post looks at the way Auto ABS is created and managed in the post -global crisis period and concludes that, while dealers should expect the boom in new cars sales to slow in the US and the UK, there are now enough safeguards built into the financial system to avoid a calamity. Some bonds may fall in value. So too may residual values, particularly for diesel engine cars. However, the conclusion is that the scale of the sub-prime Auto ABS market is not large enough to spark a regional downturn, let alone a global one.

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The ‘economics of the box’: prospects for the dealer business model

While there’s no immediate cause for alarm, the business conditions for car dealers – especially small independents – may get more difficult if new engine technologies and changing attitudes to car ownership become more widespread. The big consultancies and researchers expect electric car ownership to grow fast, if the technological, cost and infrastructure hurdles can be solved. If so, the immediate effect for car dealers will be a fall in after-sales revenue as electric cars substitute for conventional internal combustion engine ones. Electric cars generate around 25% of the service and parts revenue of conventional ones. Their expectation is that, by 2030, EV cars may become mainstream in cities and in some countries, such as China. Following closely on that forecast are two more. First, that urban dwellers may be willing to trade car ownership for mobility. Put simply, they continue the transition from ownership to leasing – which has already happened – and take the next step from leasing to on-demand mobility packages. Firms like Uber and Lyft are betting that change will happen, at least in cities and suburbs with high congestion and car ownership costs. So too are Peugeot, Renault, BMW, Audi and Mercedes-Benz. If that took place, the retail new car market would shrink even faster from the 2030’s onward. Second, there’s the much vaunted arrival of autonomous driving cars. Most experts expect this is thirty years away at least but they are all convinced that personal car ownership will cease to be mainstream if it does occur. The future for traditional car dealers who think that existing franchise protection laws and manufacturer’s investments in dealer networks will act as a bulwark to change and do not consider and assess these trends will not be bright.

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Digital and Social Media for Car Dealers Part 1: The Digital Landscape

This article is the first in a series on the use of digital and social media for automotive retail managers in an increasingly dynamic world. This post is freely available. The rest in the series are Pay To View   Aren’t all motor dealers being disrupted by digital and social media? They’re not alone. Take newspapers. According to the 2016 Carat Ad Spend Report, more than 2.7 Billion people read newspapers last year – up on the year before – but fewer companies spend their advertising budgets in them and, those that do, spend less of the available money, which is the trend since 2005. Apart from a few regions such as south-east Asia and parts of the US the result is declining newsprint profitability, job cuts and a frantic search by newspapers to generate income online. Taking the UK as an example, in 2016 the national advertising spend was around £20 Billion with over half going to digital media. Print media took just over £1 Billion, and is declining by 10% (‘quality’ press) – 15% (tabloids) each year. The continuing closure of local newspapers makes year-on-year comparison impossible, but the trend is similar to the nationals. Advertisers aren’t spending because readers are declining and fewer readers means lower response to advertising. And that includes dealer ads. For car sales managers, both new and used, accustomed to press advertising and classified listings generating a reliable stream of enquiries, the problems faced by newspapers has become theirs. They have to learn how to invest and manage in the fast-changing digital media space but, few are convinced that it works for independent or small group franchisees. “Facebook doesn’t sell cars”. Mostly true. However, digital and social media is about selling your business values, awareness of its location and generating positive attitudes and […]

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