Thursday 06/06/19

  1. In CAR NEWS, Fiat Chrysler pulls the merger with Renault, JLR and BMW team up on EVs, Ford announces the closure of its Bridgend plant and UK new car sales continue to weaken
  2. In RETAIL NEWS, Arcadia is forced to postpone its destiny, Ashley pops up to buy Game and Card Factory does well
  3. In INDIVIDUAL COMPANY NEWS, Samsung downsizes in China, BT wields the axe and Woodford gets another kick in the teeth
  4. In OTHER NEWS, I bring you the world’s tallest sandcastle. For more details, read on…



So the Fiat Chrysler/Renault deal is off, JLR and BMW team up, Ford closes Bridgend and new car sales continue to weaken…

In Fiat Chrysler withdraws merger offer for Renault (Wall Street Journal, Nick Kostov and Stacy Meichtry) we see that the whole deal is now off because the French government, Renault’s biggest shareholder, rejected the merger offer due to Nissan’s lack of support (Nissan owns 15% of Renault and Renault owns 43.4% of Nissan). Renault said that “it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully”. A merger would have made the group the third biggest car manufacturer in the world behind VW and Toyota. * SO WHAT? * So it’s back to the drawing board! The problems of scale and rising costs of EV production and development remain and so ALL parties will need to review their strategies going forward. I would have thought that Renault will now trade at more of a discount as this whole debacle has highlighted what a handicap it is to have the government as a shareholder with outsize voting rights. If Renault is unable to do deals and costs are rising, the next logical step is to cut parts of the business – which is ironic given its assurances that if the deal went through there wouldn’t have been any job losses or plant closures (although I must say I was highly sceptical of that).

BMW teams up with Jaguar to power ahead with electric cars (Daily Telegraph, Alan Tovey) highlights a new alliance between the two companies on the development of electric vehicles, specifically Electric Drive Units (EDUs) for the next generation of battery-powered vehicles. The two companies will share R&D planning and joint procurement. * SO WHAT? * Both makers are having a tough time at the moment – JLR announced its biggest ever annual loss and BMW fell into the red for the first time in ten years in the last month – and EV development is only going to get more expensive. Let’s hope it’s a fruitful relationship for all

concerned. I am sure that there will be more deals like this to come among manufacturers given the current environment of rising costs and weaker car sales.

Ford puts 1,700 jobs at risk with plant closure (The Times, Robert Lea) is the latest blow to the UK car manufacturing industry as company bosses and union leaders are due to meet today. Ford has been withdrawing from the UK for some time now as Dagenham production stopped in the early 2000s, Ford Transit van production left the UK in 2013 and Ford only recently identified 1,000 job losses as part of the company’s reshuffling of its European operations. The tough times for car manufacturing continue – and unfortunately, there will probably be more to come.

Meanwhile, Motorist confusion over rules and incentives knocks UK new car sales (Financial Times, Peter Campbell) captures the continued feeling of doom in the motor industry as the latest figures from the Society of Motor Manufacturers and Traders (SMMT) shows that new car sales are continuing to fall. They dropped by 4.6% in May versus the previous year and the SMMT blames this on government policy confusing motorists, where on the one hand they are condemning the use of diesels but then on the other cutting incentives behind the drops. Market share for diesels continues to fall (it’s now 28% versus over 50% only a few years ago!) while new petrol-powered car sales rose slightly to make up 66% of  the market. * SO WHAT? * I think that the main thing that is stopping people from buying is economic uncertainty. SMMT chief exec Mike Hawes’ assertion of policy “confusion” is hysterical BS – the fact is that when you cut incentives (the government cut electric car subsidies from £4,500 to £3,500 and now excludes many plug-in hybrids), sales pretty much always go down – sometimes to ZERO! You can’t have the government subsidising vehicles forever – although the SMMT will obviously argue that it’s cut them too early. The SMMT is just a cheerleader for the industry – not a thought-leader. If it had been a thought-leader, it would have heeded all the early warning signs for diesel when a number of European cities started to ban them in the most polluted areas. Instead, the industry just stuck its head in the sand and hoped to style it out – but now it’s feeling the consequences.



Arcadia needs more time, Mike Ashley goes after Game and Card Factory puts in a strong performance…

Vote on Green’s Arcadia plan postponed with 18,000 jobs on the line (The Guardian, Sarah Butler) shows that the company behind Topshop, Topman, Miss Selfridge, Evans, Wallis and Dorothy Perkins really is edging close to the precipice as a crucial vote on the future of the company has been delayed to June 12th (next Wednesday) because it didn’t look like it would get the approval it needed to push through its complex series of CVAs, which involved store closures and rent cuts. It is seeking to close about 50 of its 570 UK stores and cut rents on up to another 200. Each CVA approval requires 75% approval from creditors and Philip Green needs yeses to all seven proposed CVAs to ensure the survival of Arcadia. * SO WHAT? * Arcadia said in its CVA documentation that if its plans weren’t approved, the company would be “highly likely, either immediately or after a short time period, to enter into insolvent administration or liquidation” but obviously landlords called his bluff. If it DID collapse, however, it would leave a gaping hole on the UK high street and potentially have implications on the whole of the fashion industry. It never rains but it pours!

Elsewhere in the war zone that is the UK high street, Mike Ashley sets acquisition sights on Game Digital (Daily Telegraph, Ashley Armstrong) shows that the Sports Direct chief is back on the acquisition trail again, after dusting himself down following the Debenhams scrap that he lost.

Sports Direct has had a sizeable holding in Game Digital for the last two years but that got dialled up a couple of notches after it bought 14m shares from investor Malborough. This now takes his stake up to 38.5% and he is now making an offer for the whole company. * SO WHAT? * God knows what he wants to do with Game. If there was one retailer on the high street that I could name right now as being ripe for extinction due to “death from online”, it would be Game. When you think that gamers can download over the internet and that smaller numbers are buying hard copies, why would anyone actually bother with going into a Game these days? The only thing I can think of that might get people through the doors is to make them mini-arcades where you can play the latest games and perhaps score some related merch while you are there. Devoting a lot of space to game “cartridge” boxes seems like a real waste to me. If you add into that the advent of 5G and the possibilities for not only downloading – but live streaming – surely you’ve got a retail outlet whose best days are long gone.

On a more positive note, Card Factory enjoys the best of days (The Times, Elizabeth Burden) shows that there are some success stories out there if you look hard enough as sales at the purveyor of reasonably-priced greetings cards and other bits have hit new highs. Unlike high street neighbours including Miss Selfridge and LK Bennett who are making store closures, Card Factory remains on track to open another 50 outlets this year. * SO WHAT? * Given what’s going on elsewhere, you’d think that they won’t have much trouble securing space at reasonable prices! This is particularly good news for the company given that it had a very difficult year last year where annual profits and sales growth were pretty weak.



Samsung pulls back from China, BT wields the axe and Woodford’s headaches turn into a migraine…

Samsung scales back its last China smartphone plant (Financial Times, Song Jung-a) highlights Samsung Electronics’ decision to cut jobs at its last remaining plant in Huizhou City as it moves production to cheaper locations in Asia. The company continues to suffer from slow sales in China as local rivals muscle in with their cheaper and well-specc’d alternatives. Samsung now only has a 1% market share in China versus the c.20% it enjoyed in 2013. * SO WHAT? * How times change! Back in the day, Samsung needed production capability in China to make a splash in a market with huge potential and benefited from cheap labour costs. This is no longer the case and many think that the Huizhou plant’s days are numbered.

Talking about cut backs, BT unveils start of cost-cutting axe for all but 30 of 300 offices (Daily Telegraph, Christopher Williams) heralds some severe ones at BT that will take until 2023 to implement. Details have been scant as the company is currently consulting with staff. About 13,000 jobs will be cut from the current 100,000 as part of plans to save £1.5bn over three years.

Following on from what I said yesterday, Woodford woes deepen as big backer quits (The Times, Alex Ralph) shows it never rains but it pours for former star fund manager Neil Woodford, as one of his biggest investors (St James’ Place) has taken away his mandate to run £3.5bn. Once this sort of thing starts, it is very difficult to stop.



And finally, in other news…

After yesterday’s shocker, I thought I’d leave you today with the altogether more relaxing Check out the world’s tallest sandcastle (USA Today, Inspiration for the next time you go to the beach, perhaps?

Some of today’s market, commodity & currency moves (as at 0837hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq *DAX *CAC-40 *Nikkei **Shanghai **
7,220 (+0.08%)25,540 (+0.82%)2,826 (+0.82%)7,57511,981 (+0.08%)5,292 (+0.45%)20,774 (-0.01%)2,829 (-1.15%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)