Will your franchise win in the NEV wars? Part 1: Seven global carmakers compared – The Questions

This entry is part 1 of 1 in the series New Energy Vehicles

Whatever your business in the automotive supply chain – whether you’re a supplier, OEM or distributor – all motor industry businesses face some momentous business decisions linked to the transition to new energy vehicles (NEV’s). While manufacturers consider the existential threats arising from transition timing, investment, regulatory and technology issues, dealers too have threats to consider. NEV’s generate a much reduced after-market value chain, for example which will lower earnings for everyone. Both OEMs and dealers face the question of how NEV’s will be distributed – direct or via a dealer network. Tesla are pioneering direct distribution and, it would be surprising if every vehicle maker wasn’t assessing the same option. The twin threats of direct distribution and ever-reducing after market earnings are stark for dealers around the globe. This series of posts looks at the profitability of seven global car makers under three scenarios: slow, moderate and fast transition to EV’s. In each scenario five changes are made to forecast the impact on OEM volumes and profitability over the next thirty years. Read on through this series of posts if you;d like to know which OEMs are at the most risk and where their pressure points are.

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Part 2. Eden or New Jerusalem: The Roadmap

This entry is part 2 of 2 in the series Climate Emergency

Politicians are under pressure to speed up the transition to zero-emission vehicles and a carbon-free economy. Ardent climate activists want legislation enshrined to remove greenhouse gas emissions by 2025. Why not? The climate scientists say that, without these ambitious timelines, the world is committed to irreversible climate change. However, right they are, there are still substantial technical problems to be resolved to switch to a green economy without destroying the livelihoods of countless people. This post describes just a few of the efforts that governments, scientists and engineers have been working on for almost two decades. While research from centres in the EU, US, UK and China is described, there are hundreds more groups working to solve the technical problems posed by the ‘green revolution’. Sadly, science takes time as well as money. That’s why we don’t yet have a cure for cancer, which is a much smaller scale problem by comparison. Unfortunately, the world now has a surfeit of climate scientists who have been working on describing greenhouse gases for over 70 years ; it doesn’t have a surplus of electronics and technological geniuses who can solve it. Those who can are working on it. Moreover, the apparently neat solution of battery electric vehicles (BEV’s) may not be the ‘silver bullet’ that activists and politicians hope for. Engineers think that multiple solutions may be needed working in combination. We need ambitious targets, not reckless ones..and we need time to work on them.

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Car owning vs. car sharing: which will make a lasting impact on car dealer profitability?

Since the Millennium consultancies have been reporting that young, urbanites in the Triad markets (USA, China and the EU) have a growing appetite for car sharing solutions, such as ride hailing and car sharing. Those in the developing markets of China, India and south-east Asia are also less emotionally attached to car ownership. Adding into the mix the trend towards urbanization and concerns for global warming, it’s no surprise that some predict that these factors will lead to falling car sales and a squeeze on margins for car dealers. Zipcar claim that each car added to their fleet removes six cars from private ownership. What if the predictions are right? What if they’re wrong? Read on and find out.

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Emissions KPI’s: Which ones really count?

Like most business people, we’re familiar with key performance ratios such as production, sales and profit targets. But, when we’re told that our favourite calculations might be missing an important factor, we ask, “How can that be?” That’s where automotive production and distribution managers find themselves today. They measured production, sales and profits accurately, but not correctly. They missed one crucial item. They measured vehicle tailpipe emissions and watched them fall year on year. But, the calculation excluded the social costs of the vehicle’s contribution to air pollution and climate change, which have been evident for the last 50 years. Now, under the principle of ‘the polluter should pay”, vehicle manufacturers and distributors should expect some significant new policies,regulations and costs as governments try to clean up the environmental mess and avoid further damage. This post looks at what those policies and costs might be in the coming years for both vehicle makers and their distributors.

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

This entry is part 5 of 5 in the series 7 Global Car Makers 2017

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

This entry is part 4 of 5 in the series 7 Global Car Makers 2017

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

This entry is part 3 of 5 in the series 7 Global Car Makers 2017

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

This entry is part 2 of 5 in the series 7 Global Car Makers 2017

¬† 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.

This entry is part 1 of 5 in the series 7 Global Car Makers 2017

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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