They used to say “When America sweep sneezes, the whole world catches a cold”. Well, what happens when China catches coronavirus? The whole world goes into meltdown it would appear. And particularly the Nissan Renault alliance.
Shortly after announcing the appointment of its new chief executive, Luca de Meo, Renault announced its first loss in at least a decade. And to rectify it, it is planning a radical $2.2 billion cost-cutting restructure to put it back on the right track.
Losses were exacerbated by its fairly large holding in Nissan, who performed even worse than its partner. This meant that Nissan, who had contributed over €1.5 billion in 2018 to Renault’s bottom line, produced €1.3 billion less last year. Investors are not impressed, and Nissan’s share price plummeted nearly 10% on the news. The company is now valued less then much smaller marques, like Subaru and Suzuki. The last three years have not been kind to it, and its share price is down 19% this year, after a decline of 28% last year and 22% in 2018.
No wonder, then, they are suing former Chief Executive Carlos Ghosn for $90m for his alleged behaviour and misdemeanours with the company over the past decade. I guess they need every penny they can get.
When just one country like China represents a quarter of global vehicle production, then if analysts are predicting at least a 5% fall in the Chinese market (remember it normally climbs between six and 10% a year, so that might be 15% behind expectations) then everybody gets worried. Expect a slew of vehicle offers in the UK in the coming months, as European manufacturers try to divert production elsewhere.
And VW would probably like to divert attention elsewhere as well. Especially in Germany, where consumers who are suing them through a class action have turned down a settlement of nearly €1 billion so far. Negotiations are continuing, but the manufacturer once again looks set to lose another considerable amount of money, as the action continues. Not only that, the effect on its reputation in its heartland is probably incalculable. I suspect this is one they are going to have to settle quickly.
Have a great weekend, it’s probably best to leave that kite in the cupboard for at least another week.
I do not want people to be agreeable, as it saves me the trouble of liking them.
Jane Austen (1775 – 1817)
Age is mind over matter. If you don’t mind, it doesn’t matter.
Satchel Paige (1906 – 1982)
Lawyers spend a great deal of their time shoveling smoke.
Oliver Wendell Holmes Jr. (1841 – 1935)
There is no nonsense so arrant that it cannot be made the creed of the vast majority by adequate governmental action.
Bertrand Russell (1872 – 1970)
There are a lot of headwinds for the automotive industry in 2020, but I don’t expect anybody had factored in the coronavirus is a major part of their planning. However, a sector that is grappling with electrification, balancing CO2 figures in Europe, a trade dispute between the US and China and falling consumer demand is now having to close down factories and rein back on production because of the extent of contagion across the China region.
And the analysts have started to play this game as well. They are comparing it to the SARS outbreak 16 years ago. They reckon that it could see a potential 3-5% slashed off global production if it all turns sour. But most of them are hoping that the outbreak will be mainly contained in China.
Elon Musk does not do things quietly. And he has taken great delight in the discomfort of hedge funds over the past few weeks. Apparently Tesla is the most shorted stock on the planet at the moment. And in case you do not know how shorting works, hedge funds borrow shares from something like a pension fund for say six months. They sell them in the hope of buying them back cheaper and handing them back. But it leaves you with a little bit of egg on your face if the shares double or triple in the meantime.
And since last summer, Tesla has boomed – in late May they were listed at $185. At the start of this week they were at nearly $900. In theory if you had borrowed 1m shares for 9 months, you could be looking at a loss of $71.5m. And many have found themselves in this situation, with a position to square by the end of January. It meant not only was it costing them a fortune, but as everybody was after the same stock, it’s price ratcheted up. You have to feel sorry for them, don’t you?
In fact the stock has slipped back a little this week, largely on the news that they will be cutting production in China because of the aforementioned coronavirus. Nevertheless the company is riding high compared to last year $740 as I write this, and looks as if it will make a significant profit this year too.
Which is more than may be said for some dealer groups in 2020. Figures in January look pretty dire, even though many of the groups I have spoken to are of the opinion that the market has picked up. For many this is franchise specific, and any dealer over reliant on diesel is likely to remain in a pretty poor place. Digital registrations are now back to 2000 levels, when they formed less than 20% of registrations.
Have a great weekend, I would not bother getting your kite out for Sunday.
About the time we think we can make ends meet, somebody moves the ends.
Herbert Hoover (1874 – 1964)
Humor is our way of defending ourselves from life’s absurdities by thinking absurdly about them.
Lewis Mumford (1895 – 1990)
The trouble with having an open mind, of course, is that people will insist on coming along and trying to put things in it.
Estimated amount of glucose used by an adult human brain each day, expressed in M&Ms: 250
Harper’s Index, October 1989
Today is 31st January. Which is occupying you more? Transfer deadline day, your tax return, or our departure from the EU? Having just returned from a trip to Europe today, no doubt it will be some time before any citizens notice any difference in our relationship. Though many continue to see it as a cause for celebration or recrimination, depending upon which side of the argument you come down on.
There was, however, some good news this week for the automotive manufacturing industry in this country. After a big slump last year, it was good news on a number of levels. You may have seen the headlines, UPS has ordered up to 20,000 new vehicles from a start-up company, Arrival. They have been manufacturing rechargeable light commercial vehicles for a little while, but in small numbers. But have also been working very closely with a number of key clients, such as UPS, to design their next generation of vehicles. And these will be completely re-engineered from the ground up. Not only that, so will the manufacturing process.
And the good news is that their main factory is in Banbury. At present they employ 400 people, of which more than half are in the UK. And the revolution? This is very much a modular production model, producing major components in a number of different places before finally assembling them. Dare I say it, much like PCs are created nowadays. Someone produces a hard drive, another the processor, another the memory and the motherboards. The assembler gathers all this together and then bolts them into place. Compare this to Tesla’s model, they have built one of the largest factories in the world in China, producing 500,000 vehicles. Study it – Arrival’s model is more nimble, more adaptable, less capital intensive and less risky.
And talking about risk, did any of you put any money on Aston Martin over the past few months? Looking at the headlines this week, perhaps you should have done. It would appear that Lawrence Stroll, head of the Formula One racing team, has injected an enormous amount of capital, and renamed his team Aston Martin racing, saving the company and reinvigorating it. Shares today have shot up as a result.
Have a great weekend, enjoy your first few days out of Europe.
It is not easy to find happiness in ourselves, and it is not possible to find it elsewhere.
Agnes Repplier (1855 – 1950)
Though it sounds absurd, it is true to say I felt younger at sixty than I felt at twenty.
Ellen Glasgow (1873 – 1945), The Woman Within, 1954
It is very strange that the years teach us patience – that the shorter our time, the greater our capacity for waiting.
Elizabeth Taylor (1932 – ), “A Wreath of Roses”
Keep cool and you command everybody.
Louis de Saint-Just (1767 – 1794)
Apologies, this week I am going to talk about technology again. Because, let us face it, that is the future of the motor industry. Reading this week’s headlines, you have to ask whether Tesla is the new Microsoft or Apple, the company that disrupted the market so much that it came to dominate it.
In a week that it passed VW in terms of market capitalisation of $100bn, after a month when its share price had surged by something like 30%, is Tesla finally turning a corner? With its 500,000 unit new manufacturing facility in China, and its massive factory announced in Berlin, is it expanding so fast it will become unstoppable? And will the UK rue the day that it missed out on that very same factory last year?
$100bn is a big number, but to underline the fact that Tesla is seen as a serious threat, see if you can catch the interview with VW Group CEO Herbert Diess on Bloomberg. His message – “We are coming for Tesla”. VW has called on their management team to become much more agile and adapt to the new market reality, or lose ground rapidly. “The company which adapts fastest and is most innovative but also which has enough scale in the New World will make the race” he said.
VW is also investing heavily in car sharing, including the WeShare car sharing scheme. This will extend across most of Europe, but the UK has been excluded. BMW and Daimler last month also withdrew a similar car sharing scheme from the UK. Despite worries this was down to Brexit, apparently it has been down to a lack of interest from consumers. But the German manufacturers definitely see a future in car sharing platforms, just not in the UK. I guess they are hedging their bets, in case it becomes the new reality of automotive “ownership”.
Have a great weekend, enjoy the cricket while you finish off your tax return.
The most incomprehensible thing about the world is that it is at all comprehensible.
Albert Einstein (1879 – 1955)
When you’re through changing, you’re through.
There’s only one way to have a happy marriage and as soon as I learn what it is I’ll get married again.
Clint Eastwood (1930 – )
You can discover what your enemy fears most by observing the means he uses to frighten you.
Eric Hoffer (1902 – 1983)
We stand on the threshold of another year. Of another decade. But it is impossible to overemphasise how fast the current pace of change is.
Look at the headlines in The Financial Times, Automotive News Europe, or even the Wall Street Journal. Serious players like VW have stuck their hands up and said they need urgent reform. “They do not want to be the next Nokia”. Serious analysts are looking at the structure of the European and world automotive industry and saying the changes needed are fundamental and urgent. Consumers are looking at the world and saying unless we all make changes, then things like climate change and environmental damage could become irreversible not just for a grandchildren, but for our children and ourselves. And 2020 is a crucial year for the EU and for European car manufacturers in particular, as they face up to the challenge of CO2 emissions and enormous fines for getting it wrong.
Let me read you headlines from the front of one of the leading European automotive websites. “Fiat Chrysler and iPhone maker plan Chinese EV joint venture”. “Germany plans aid for struggling auto industry”. “Toyota makes a new $394 million bet on the flying taxis. “VW needs urgent reforms to avoid Nokia’s fate”. That is just the top four headlines, change will define this decade like never before.
Added to which, every single manufacturer that we know is urgently talking about electric vehicles and hybridisation. Some are very late to the party others, such as Tesla, are completely new entrants to the market.
To my mind this harks back to the mid-80s when computerisation had just begun. At first the technology was pretty rudimentary, highly inefficient and early adopters spent a fortune on implementing a computerised solution. I remember the first serious computer for our business cost £12,500 in 1989, it had 100K of RAM and 1 MB of hard disk storage. Most wristwatches and Fitbits have more computing power nowadays and can be bought for as little as £15. So it will prove with this new technology, and over the next 10 years we will not be able to believe the pace of change.
And this is what is worrying retailers everywhere. Because as technology changes so rapidly, so do retail and aftersales models. I have used this analogy before, but it was the 50th anniversary of the moon landing last year. Many families bought a colour TV to be able to watch it (irony of ironies, all footage was in black-and-white) and just a few years later all TVs moved from being valve based to transistor-based. Your high street TV shop employed teams of technicians and used to rely on a six-month service and valve replacement in the old TVs, just like current motorcars. Within five years that service became irrelevant. How long before electric vehicles make our industry go the same way?
And in case anyone thought that the European car market was going berserk, it was up 21% year-on-year in December, think again. The smart money is on vehicle manufacturers destocking last year all of their gas guzzling models, because this year they are going to be judged on their model mix and emissions. So they had to clear the decks before 31 December.Have a great weekend. Enjoy the cricket.
I always wanted to be somebody, but I should have been more specific.
Jane Wagner, (and Lily Tomlin)
The great tragedy of Science – the slaying of a beautiful hypothesis by an ugly fact.
Thomas H. Huxley (1825 – 1895)
It is easier to fight for one’s principles than to live up to them.
Alfred Adler (1870 – 1937)
My life has no purpose, no direction, no aim, no meaning, and yet I’m happy. I can’t figure it out. What am I doing right?
Charles M. Schulz (1922 – 2000)
Happy New Year.
With 2020 vision, a few people might have made some different choices over the last couple of years. Perhaps investors would not have been so keen to plough into Aston Martins IPO back in 2018. And perhaps shareholders would have bailed out at the start of last year had they known that shares would plummet by around 80%. It certainly has not been helped by a profit warning this week.
There are some potential glimmers of hope on the horizon, however, with the long awaited DBX about to launch in the early part of this year, and reports that Geely, the Chinese car company that owns Volvo and Lotus, as well as quite a sizeable chunk of Daimler, is reported to be interested in buying a stake in the company and providing much needed finance.
And perhaps Carlos Ghosn might have done things differently. So he did not have to be smuggled out of Japan in a music crate. No doubt his escape will be written about for many years, and his holidays to Japan will not be as frequent as before.
But his appearance in Lebanon was a real surprise to everyone. And it is what this has done to the relationship between Renault and Nissan that is much more relevant to our industry. Because the analysts reckon that any tie-up is pretty dead in the water. Arndt Ellinghorst, one of the leading analysts in the City, has written a report this week on precisely why this relationship went sour. He dates it back to when the French government took an extra slice of Renault and effectively blocked Nissan’s influence on the Renault board, while leaving Renault with a big influence on Nissan. He cannot see the alliance being salvaged unless the French side sell down some of their shareholdings so both parties return much more to equal participants. And he does not think this will happen.
But he does think that the subsequent revelations from Mr Ghosn will also be quite damaging, as they will probably highlight mistakes, mistrust and open animosity in the relationship. Whatever the outcome, Renault almost certainly needs a global partner of some sort, and at the moment there are not many choices out there.
On a brighter note, many of my clients are reporting that, despite this being early days, the market looks a little more buoyant this year than it did last. Whether this is the Boris effect, the relief of getting an election out of the way, or just leaving behind a particularly disappointing decade, only time will tell. But there are some green shoots out there.
Have a great weekend, only 343 shopping days till Christmas.
The man who says he is willing to meet you halfway is usually a poor judge of distance.
Laurence J. Peter (1919 – 1988)
The trouble with being poor is that it takes up all of your time.
Willem de Kooning (1904 – )
Take care of the luxuries and the necessities will take care of themselves.
Dorothy Parker (1893 – 1967)
We confess our little faults to persuade people that we have no large ones.
Francois de La Rochefoucauld (1613 – 1680)
While there we go, the end of another decade. It is interesting to see how the industry has progressed over that time. In 2010 there was a total of just over 2m new cars sold. This year the predictions are around 2.3m, despite a substantial year on year fall. Much of this is blamed on Brexit and WLTP. Car manufacturing, however, has stood fairly static. The SMMT reported a continued fall in manufacturing last month, it estimates that we will finish the year on 1.3m vehicles. In 2010, production was at almost identical levels. At that point, Vauxhall and Ford held the top four places between for sales by model, with only the BMW 3 series in 8th position as any sort of contender from the premium bracket. By 2019 the Mercedes-Benz a class was the fifth biggest seller, propelling the manufacturer very much into the volume sphere.
But it has probably not been the finest 10 years for the UK automotive industry. The similarity between the start and end of the decade disguises how things boomed in the middle. By 2016 we were producing well over 1.8 million vehicles a year, and car registrations of nearly 2.7 million. Analysts sadly are optimistic for the start of the next decade. Continuing economic turmoil, an industry very much in flux and the EU bearing down with severe emissions restrictions, most predict that manufacturing will continue to fall, and we will be lucky to sell more vehicles next year than we have this.
Nevertheless, groups like Marshalls continue to see the upside in the industry. They completed their purchase of 6 VW businesses from Jardines this week, and added in a new Volvo business, purchased from Vertu. The Volvo dealerships are part of a franchise very much on the rise, with accelerated electrification and significant investment from their Chinese parents. Marshalls now own 7 Volvo businesses, a substantial portion of the manufacturer’s network.
This week also saw the confirmation that FCA and PSA (Fiat, Chrysler and Peugeot group) a set to finalise their merger in the coming year. This will make the world’s fourth largest car manufacturer, and will give them significant toehold is in markets all around the globe. Quite what it will mean for the U.K.’s Vauxhall manufacturing plants, however, is unclear. Though many are sceptical that they can survive.
This will be our last newsletter of 2019. Our thanks to all of our customers, candidates and interested parties over the past year. It has certainly been an intriguing ride. Enjoy your Christmas break and happy new decade.
It is always easier to believe than to deny. Our minds are naturally affirmative.
John Burroughs (1837 – 1921)
What we anticipate seldom occurs; what we least expected generally happens.
Benjamin Disraeli (1804 – 1881)
Gratitude is merely the secret hope of further favours.
Francois de La Rochefoucauld (1613 – 1680)
Most conversations are simply monologues delivered in the presence of witnesses.
Markets love certainty, and with the news of the Tories sizeable majority hitting the airwaves last night, markets around the world reacted. And not surprisingly, so did our industry bodies. With both the SMMT and the NFDA issuing statements today, congratulating the Tories and hoping we can get back to business. Certainly a majority of this size will allow the Prime Minister to negotiate confidently with the European Union, and not have to worry about any disruptive tendencies in his party, be they Leave or Remain. And many experts think that this has effectively ruled out a hard Brexit, because anything in between will be much easier to negotiate.
It is certain that the election will have an effect on our industry, though perhaps not quite so much of an effect as it did on The Car Centre in Petersfield. Rather imaginatively, they have been used as a polling station in the past and so it proved again this time. I mean, if you want to get your footfall stats up for the month I can think of no better way. And upon reflection, I am surprised that not more dealers have tried it. The article also referred to a White Horse pub that performed a similar service. You’ve got five years to plan it if you think it is a good strategy.
While the world certainly liked the look of our election result, there was also cautious optimism about Trump’s trade deal with China. Though analysts were quick to point out that it is actually quite limited in scale. As far as the automotive industry is concerned, a much more worrying statistic is that the Chinese market has just had its 17th month of decline in a row. And when you are as big as they are, it has a massive global impact.
Trump also tweeted congratulations last night, and told us to get ready for the “biggest trade deal ever” which is encouraging. Though precisely how this deal will play out remains to be seen. Plenty to keep us busy over the next two years or so, I am sure.
There’s not much more than two weeks left of this decade now. Quite a sobering thought. I remember at the turn of the millennium thinking what a milestone. It is difficult to think that it was 20 years ago. Still, let’s hope we can enter the New Year with confidence and a 2020 vision both for the UK and for the automotive industry.
Have a great weekend, might be time to apply for that European passport?
The very purpose of existence is to reconcile the glowing opinion we have of ourselves with the appalling things that other people think about us.
The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.
It matters not whether you win or lose; what matters is whether I win or lose.
Whatever you do will be insignificant, but it is very important that you do it.
Mahatma Gandhi (1869 – 1948)
It has been a difficult year for sales most dealer groups would admit. But I tell you one thing that has started selling like hot cakes recently, VW dealerships. Look at the announcements in the past quarter, first Inchcape sold some of its VW sites to Group 1, selling two more this week to Citygate. Last month Sytner sold four sites to Johnson cars in the North West and finally this week’s Marshalls bought seven sites from Jardines.
This is quite a realignment of the VW network, concentrating ownership into a smaller number of trusted groups. In the light of the franchises acknowledged WLTP delivery issues, it also shows great faith by the new owners, who are presumably expecting much better things for 2020.
This was not the only reason that VW was in the news this week. 90,000 VW owners in the UK have got together to sue the German carmaker over the emissions scandal. Recent history of such legal actions in the US suggest that payouts could be quite large, although German consumers did rather worse, picking up only around €900 an owner. So far the company has paid more than £26 billion in fines, as well as recall costs and other settlements. On the plus side, it has enjoyed probably its strongest two years for some time since 2017.
Whether it will continue to do so is largely up to the global automotive market. A market that the Financial Times reported was shrinking at an alarming rate. In fact according to the VDA, the German industry association, the global market has shrunk faster than it did in 2008, with year-on-year sales down by 4 million units. That is about 5% down on global sales of just over 80 million vehicles.
Still, losing manufacturing won’t affect us much in the UK after Brexit. The future already looks very uncertain anyway. Whereas Germany employs nearly 900,000 people in car manufacturing alone.
Have a great weekend, make sure you know where to find your polling card for next week.
Nobody believes the official spokesman… but everybody trusts an unidentified source.
Money can’t buy friends, but it can get you a better class of enemy.
If two men agree on everything, you may be sure that one of them is doing the thinking.
Lyndon B. Johnson (1908 – 1973)
The young have aspirations that never come to pass, the old have reminiscences of what never happened.
To lose one chief executive in a top-10 group in the year is unfortunate, to lose two seems careless, so the announcement of the departure of the fourth senior CEO this year (Pendragon lost 2 remember), Darren Guiver, at Group 1 came as a bit of a shock. Apart from the normal pleasantries of wanting to spend more time with his family, there has been not much clarification over the circumstances. No doubt the analysts will be wading their way through the group’s results. And senior executives from competitors will be looking a little more nervously over their shoulders.
Another group much further down the AM100 league, Caffyns, announced their results this week. It has been a tough year, and a 92% fall in profits does not look great. To be fair to them they have been involved with VW and Audi, each of which had their own specific WLTP challenges in the past 12 months, but it is evidence of a tough market.
In a move that some analysts say could scupper the proposed PSA and FCA merger, GM has launched a lawsuit against FCA. They claim that they colluded with unions to gain a competitive advantage. I have not read many details of the case yet, but it would seem that they are accusing Fiat Chrysler of “persuading” the unions to accept lower terms with them, while demanding much higher pay increases from GM. The suit is allegedly worth billions of dollars and will no doubt play highly in the headlines over the coming months.
The golden rule of vehicle launch presentations when you announce anything, make sure it works. And if you want to demonstrate how fantastically tough something is, it had better stand up to the treatment you are about to dish out. (It almost reminds me of the Everest double glazing advertisements, if any of you are old enough to remember them.) So if you hit your new vehicle with a sledgehammer on the windscreen it is not great if it cracks, badly.. So Elon Musk demonstrating his unbreakable windscreen on his new pickup truck has created lots of news, but not many great headlines.
Have a great weekend, I’m happy, Test Cricket is back on. Oh, and the Davis cup.
|THIS WEEK’S JOBS
Here are some jobs from the past ten days. Check these out and see if there is anything tempting. Click on the link to apply immediately through our site. The situation is changing the whole time and if any link refuses to work, it is probably because it has already been filled and removed. Check out all our jobs at on our Jobs Page
|QUOTE OF THE WEEKIf fifty million people say a foolish thing, it is still a foolish thing.
Anatole France (1844 – 1924)
The best time to plant an oak tree was twenty-five years ago. The second best time is today.
All the President is, is a glorified public relations man who spends his time flattering, kissing and kicking people to get them to do what they are supposed to do anyway.
Harry S Truman (1884 – 1972), Letter to his sister, Nov. 14, 1947
People can have the Model T in any colour–so long as it’s black.
Henry Ford (1863 – 1947)