Random thoughts on luxury and cars

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I caught a wonderful interview on CNBC this morning with LVMH Chairman & CEO Bernard Arnault.  He is a consummate gentleman and made a great differentiation between real and perceived luxury. I particularly liked his rather tame reference below, which can be extrapolated to many other items and brands that have been more fleeting than any in his portfolio.

“WORLD LUXURY MAYBE IS NOT COMPLETELY RELEVANT TO OUR INDUSTRY, is not a quote you’d expect from the leader of such brands ranging from Cheval Blanc vineyards to De Beers Diamonds.  He went on to explain that luxury may be more fleeting in today’s mind.  He focusses on “high-quality” products of artisan quality.  Very interesting take.  He added…

“I HAVE A GREAT ADMIRATION FOR APPLE AND FOR THE iPHONE. I HAVE MYSELF AN iPHONE. BUT CAN YOU SAY THAT IN 20 YEARS PEOPLE WILL STILL USE AN iPHONE? MAYBE NOT. MAYBE WE’LL HAVE A NEW PRODUCT OR SOMETHING VERY MORE INNOVATIVE. BUT WHAT I CAN SAY TODAY IS 20 YEARS FROM NOW, I’M QUITE CONVINCED THAT PEOPLE WILL STILL DRINK DOM PERIGNON.”

Now for my obligatory automotive note.  We heard this bombshell from Detroit. download “Chrysler is not a luxury brand,” said Sergio Marchionne as he announced Fiat Chrysler’s new 5-year plan.  No real relation, but I found he juxtaposition rather catching.  Now that I have that cleared up, I can get back to work.

 

Can Jim Cramer solve Tesla dilema; CramerTeslaAutos “a 0% margin dealer”

100780462-CRAMER-IN-TSLA.600x400The media narrative is predictable.  Elon Musk, the transformative latest incarnation of Thomas Edison, locking horns with the entrenched old economy model of the NJ Auto Dealers.  Musk is cool, he has a cool car, he’s a visionary.  NJ and other states surely must yield.  Right?  While I may agree with the Tesla model of new direct sales — I don’t see Tesla volume and positioning an existential threat to any dealer from AutoNation to the local mom-and-pop single point dealer.   I don’t agree with this in your face reply to the NJ dealer and politicians.  It may gin up support from those who already support Tesla, but it’s not going to work in the long run.  What if Musk turns to Jim Cramer and his hedge fund buddies for solution?

Auto dealers, while, not the most popular businessmen in perennial “trust surveys” hold significant clout in their local and state economies and political circles.  Dealer are the biggest donors in the sector, and they donate mostly on local issues.  Remember during the GM and Chrysler bailout we were reminded by the Car Tsar how the dealer networks were key employers of the million or so jobs at risk.

In addition to the “million” or so folks whose jobs are “at risk” there are the 99% of car buyers who view Tesla as an elitist brand.  Cool, but elitist.  Jim Cramer comes across as an any man, but at $100K a pop, Tesla is a rich man’s toy.  And I don’t need to remind anyone that while green is good, class warfare has been fomented to froth over the past few years.  How bad does a marginally employed tradesman feel for the hedge fund manager who can’t buy a six figure sports car?  Not!

Just a thought.  What if all these doctors, lawyers, marketing execs (one of my friends) set Back Cameraup a dealer group that sells Tesla at 0% for the company.  The meeting-of-minds with these financial titans should be able to configure a pass-through dealer model that can be funded through Tesla equity and or new Tesla product ownership derivatives.  Jim Cramer has been a major cheerleader for the group.  He can be the front.

OK, so slightly more seriously.  I am confident Tesla is working on creative relationships to transform the dealer experience at the same time as transforming the auto experience.  For those that detect a touch of sarcasm, I’m serious.  The last reform of the dealer structure was 20 years ago when Wayne Huizenga opened his first CarMax.

A hedge fund run dealer group is just one throught.  Apple?  Google?  Or maybe a viable future for JC Penny or Radio Shack. OK, sarcasm noted.

It’s Tesla, I’m just trying to think out of the box. 

Wall Street Tesla@elonmusk @jimcramer @madmoney

 

GM names Barra CEO; “bold and timid,” good luck

Luxury race to where

When I heard that the GM board had picked Mary Barra this morning, my gut reaction was different than most. It didn’t even dawn on my that they had picked a woman.  I thought about how they went with a 30+ year GM veteran.  So we have the first female head of a car company, great, now what?

gmAll morning we’ve heard the accolades and hopes.  Now that she has the reigns and the company is no longer constrained by government holdings, she has to prove herself the reformer she and her advocates say she is.  GM has a long way to go in throwing off the mantle of “government motors.”  To many insiders the moniker was as much an indictment on the bureaucracy and inefficiency of GM than the government shareholders we all knew were a losing investment.  

I liked GM’s move to ditch Chevy and focus on Opel in Europe last week.  Other moves including the relocation of International Operations out China seem more shuffling.

And don’t get me wrong, I have no issue with her being chosen over Mark Reuss, Steve Girsky or Dan Amman.  She has a strong engineering background has been through the ranks like any other vet and there’s no doubt she knows GM and the business.

The top centenders: Girsky, Amman, Barra, Reuss

The top contenders: Girsky, Amman, Barra, Reuss

Bottom line is that GM still faces some tough questions.

  • More and more competition from the same old foes like Ford and Toyota. But now they’re getting hit on the flanks from new US assaults from the likes of VW/Audi and Hyundai/Kia.
  • They still are too bureaucratic.  I love the story of her tossing the dress code, but what about streamlining sales/production and planning?  Have they overcome the real challenges bluntly laid out by industry maven Jerry Flint in 2000?  I hear conflicting reports from GM insiders and refugees.The bailout gave GM a new lease on life, I am cautious in the assumption that it gave them new DNA.
  • Finally, the real test for the industry and GM comes in the next 12-24 months as the US industry ends its run of double digit annual growth.  Crossing our fingers and hoping Europe turns is not a strategy.  It’s going to be the ultimate test of production and sales coordination.  We’ve seen huge strides in pricing power in 2013 at GM and  with most virtuous players.

But, I’m keeping an eye on building inventories, decreasing resale values and relatively low discounts;  If nothing else, she has a great environment to show her stuff.

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Breaking News: Japanese car brands are alive and well in the U.S.

Newly assembled 2013 Ford Escapes sit on plant lots ready to be shipped out to dealers at the newly transformed Louisville Assembly Plant in LouisvilleSo Japanese brands are back in the U.S. auto market. I wasn’t aware they ever left.

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Japanese brands gained during crisis, but overall have been stable.

Sure, the past two years have given us production upsets from a tsunami, the Tsunami and a hyper strengthening of the yen all while the US auto market has bounced back from historic lows during the financial crisis. Japanese brand market share peaked in 2 Continue reading

PSA, an existential outlook. UG or not UG

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Will PSA be here as a company in 5 years.  Sure it will, as a brand, company and equity.  But in what way shape or form seems to shift each day.  Six months ago the market was pretty hedged on that question, a couple of weeks ago they seemed to have a plan.  After Philippe Varin’s comments this week on “alliances” fear is creeping back.  So, is there an existential threat to PSA at least as an invest-able vehicle?

Worries over the partnership with GM dying out are overblown.  The real cost savings PSA-RADD2012-EN_01_img_58have always been closer to 2017-2018.  At the same time, Opel and PSA do have a number of areas where they can cooperate. Mr. Varin made it clear that while the B platform is “under review” the B- and C-MPV projects are Continue reading

Renault –constructeur de Nissan. In France

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In a Friday news dump that I am sure Renault management wants to frame positively comes the news Renault will add Nissan production to its bloated French factory footprint.  Renault, the builder of Nissans.  Interesting 14 years after a small group of maverick Renault managers arrived in Tokyo to rebuild a bankrupt Nissan company

While conventional wisdom has always been that Nissan would lever its world class productive Sunderland plant with some Renault product, it seems events have turned.

When a hobbled Nissan launched the 2001 Micra which shared components with the gbRenault Clio, CEO Carlos Ghosn played hard to get with then Prime Minister Tony Blair, threatening to go with a competitive site in French site.  Industry insiders smirked at the thought as Renault openly admitted Continue reading

Auto recall, how bad at the bottom line?

Today brings news of another multi-million unit recall covering 3.4 million units with Happy_Auto_Repair_Customerpotential airbag inflator issues. In 2011 (the last year I have numbers for) more than 15 million motor vehicle were recalled in the U.S. While massive global recalls top headlines, do they really matter.  Well, like all things, that depends.  First it depends on how they are handled.  And secondly on what they are for.

This airbag issue is a great example of a recall that looks more financially relevant than it 10FS2_figabcreally is.  Toyota has the biggest exposure with 1.7 million units mainly in Japan and North America.  The cost of the recall could be several hundred million US dollars, however, the key word is “could”. Continue reading