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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Part 1.Eden or New Jerusalem: Politicians, the motor industry and the climate emergency

This entry is part 1 of 2 in the series Climate Emergency

Politicians, climate scientists and activists, certain that they have special knowledge about the world that demands urgent, focused attention, turn to increasingly loud, scary, and simplistic solutions to the task of transitioning to a carbon-neutral economy to avoid further global warming. While they seek to re-engineer society to force broad changes in consumption and production patterns in the name of such meaningless slogans as “climate emergency” or”net-zero by 2025″, qualified engineers and scientists are solving the tough questions that will allow the world to actually make the changes required. Behind the noise, there is a clash of philosophies. On the one hand, there are those who wish to return to an-earlier, simpler life. They would like to convince the world to embrace a journey to a new version of the ‘Garden of Eden’. The scientists, engineers and managers have a very different destination in mind – a New Jerusalem, where sophisticated technical solutions master the global warming challenge. This first post draws distinctions between the two views. The second looks at the progress that the technologists have made and asks whether the politicians and activists have even taken a look.

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The Motor Industry: Prescient, Prudent or Profligate?

The motor industry business model is based on three core elements: centralised large-scale centralized manufacturing allows the potential for scale economy. To key ingredients are ever growing markets, through adding global distribution, and ever growing volumes, by giving more cars for less. For manufacturers and dealers alike, margins on vehicles have become paper thin. Both make their money from after sales and finance products, rather than vehicles. In 2020, after almost 75 years of global growth, the industry is facing fundamental change: vehicles must become zero- carbon, from production through to disposal. and the the depletion of natural resources must be significantly reduced, if not sopped altogether. For the industry, it requires an entirely new business model based on three concepts: living within strict resource use and emissions limits backed up by regulations and penalties; transition towards electric vehicles as swiftly as the technology will allow; and, finally, new Key Performance Indicators that measure the costs from ‘cradle to grave’ of the vehicle. Only manufacturers and dealers who can make the transition quickly will be survivors.

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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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Who gives a dime? The impact of Electric Vehicles on Jobs in Auto makers and retailers

As politicians and activists, auto-makers and early-adopters, embrace electric vehicles as the key transport development of the early 21st century, few are concerned about the impact on jobs. Automotive is one of the world’s largest industries with 8MN-10MN employed directly and another 20MN-25MN in support roles. The outlook for these stable, high quality jobs is at best uncertain. Up to 1MN jobs may be lost in manufacturing and another 13MN in support jobs. Does anyone give a dime?!

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Brexit: the impact on car retailers

Whatever your political preferences there is no escape from the impacts of ‘Brexit’ if you’re in motor retail. Retailers and repairers are the final link in global supply chains that are all likely to see disruption. These two blog posts highlights the likely effects on motor retailers and authorized repairers of three possible Brexit negotiation outcomes over two time horizons: immediate and medium and long term effects. This first post focuses on the immediate effects.

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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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