Tuesday 19/02/19

1. In VEHICLE-RELATED NEWS, Honda closes Swindon, US dealers offer bigger SUV discounts and Ford does e-vans
2. In CONSUMER/RETAIL NEWS, UK consumers are nervous but not changing their spending and JD Sports takes a slice of Footasylum but not the whole cake
3. In INDIVIDUAL COMPANY NEWS, Samsung plans new phones and Citi looks to robots
4. In OTHER NEWS, I bring you a new hobby. For more details, read on…

So Honda plans to close Swindon, US dealers are offering bigger discounts on SUVs and Ford gets with an electric van start-up…

Honda set to close Swindon plant in fresh blow to UK manufacturing (Financial Times, Michael Pooler, Slyvia Pfeifer and James Blitz) just gives us the lowdown of what you’ve probably seen already when the news came out yesterday – that the Japanese car manufacturer is expected to close the factory by 2022, which would spell the end of Honda’s only manufacturing site in the EU. This news comes hot on the heels of Nissan’s recent announcement that it won’t be building the X-trail in its Sunderland plant. The company was at pains to say that this wasn’t just because of Brexit and pointed to the fact that it will also be closing its factory in Turkey, with production being reshored back to Japan. Why Honda’s ‘cornerstone’ operation is being driven out (Daily Telegraph, Anna Isaac) does a good job of summarising the various reasons driving this decision which include the Japan-EU trade deal coming into force this month where the current 10% tariff on Japanese car imports will be phased out over the next seven years (90% of Honda Civics made in Swindon are exported to the EU), the continued demise of diesel (Swindon makes the 1.6litre engines for the new Civic model and the CRV), Brexit (tariff uncertainty and potential problems with the supply of car parts will cause problems) and Trump’s tariffs on cars imported from the EU. * SO WHAT? * A consultant who works with Japanese businesses, Pernille Rudlin, believes that it won’t be just the 3,500 Honda workers who will lose their jobs – 6,000 additional jobs that rely on Honda in Swindon will also be at risk. The decision (which is expected to be confirmed officially today) could also have wider implications on Britain’s car manufacturing industry with the futures of Vauxhall’s Ellesmere Port in Cheshire (which makes the Astra), Toyota’s Burnaston site in Derbyshire and Ford’s UK operations all potentially at risk. The fact is that the car industry is changing rapidly at the moment and the uncertainties of Brexit are a convenient excuse for people to jump on. Car manufacturers are dealing with changing ownership patterns, ever-tightening regulation on emissions and a transition from “traditional” technology to something completely new, which explains why so many of them are branching out into other business areas (such a e-scooters, ride sharing etc.) in order to survive for the long term because the old model just ain’t going to work. I think that the whole industry has displayed a great deal of arrogance for a number of years by not changing – and this

has now come home to roost. The writing for diesel should have been on the wall when increasing numbers of cities banned diesel-powered vehicles – AND when the whole VW “dieselgate” thing happened a few years back – but the manufacturers just reacted by making a few promises here and there while actually just churning out more diesels. I would expect much more manufacturer co-operation and M&A (both between manufacturers and smaller companies with attractive tech) as time goes on because the costs of evolving successfully with the market will be enormous.

I mentioned recently that US car dealers were experiencing higher inventories than usual but Discounts on SUVs are getting bigger as dealer inventories rise (Wall Street Journal, Adrienne Roberts) shows that manufacturers’ increased production of their more profitable SUVs is now causing a build-up of inventory to the extent that, in January, the availability of unsold SUVs and trucks grew by 12% versus the previous year according to research by WardsAuto. This has meant that average discounts for SUVs and trucks have risen for the fourth consecutive year, according to data from JD Power. * SO WHAT? * Things seem to be OK for now in terms of the American market (the US has been the one bright spot in sales for many manufacturers recently) but if this discounting malarkey continues, the amount of money manufacturers spend on incentives like bonus cash, low interest rate financing and lease specials will have to increase, which will ultimately impact profitability – and they’ll be back where they started. I would have thought they will have to rein in production a bit to restore balance but if they did this it could have repercussions further down the chain on things like car parts.

Ford teams up with electric van start-up for parcel deliveries (Daily Telegraph, Matthew Field) heralds a very interesting development as Ford announced that it will be working with London-based start-up Gnewt on its parcel delivery service. The idea is that Gnewt’s vans will use an app built by Ford that will send one van to a location picked by its software where it will meet several bike and foot couriers who will then take the package on its “last mile”, rather than sending several vans on multiple drop-offs. This is meant to reduce congestion and take more vans off the road. * SO WHAT? * This sounds like a brilliant idea, no? The consumer wins by getting a quicker delivery, the environment wins by having less polluting vehicles on the roads – but ironically van makers may lose out because of potentially slower sales. This is another example of a big automobile company diversifying its business in order to find other niches in which to operate that could help long term survival. There’s a lot of this going on at the moment – and I expect agreements like this to become increasingly common.

UK consumers lose confidence but aren’t making wholesale changes to spending habits while JD Sports buys a chunk of Footasylum…

In two separate surveys, Job worries damage consumer confidence (The Times, Gurpreet Narwan) highlights the latest IHS Markit’s survey’s findings that people’s confidence in their finances has fallen to the lowest level since March 2018 while Most shoppers say Brexit has not affected spending habits (The Guardian, Richard Partington and Kayleena Makortoff) cites a survey of 2,000 shoppers, carried out by accountancy firm PwC, which shows that over half of respondents said that they had not and will not change their spending habits due to Brexit. Funnily enough, areas that had higher proportion of Brexiteers were the most adamant. * SO WHAT? * Surveys are always interesting, but I think that they don’t give the whole picture because they are trying to measure something that is inherently intangible and easily changed – opinion and how people might act in the future. However,

if you combine this with hard data, like releases from the ONS for example, then it becomes more compelling.

In JD Sports rules out bid after it takes stake in Footasylum (Daily Telegraph, Charlie Taylor-Kroll) we see that JD Sports bought an 8.3% stake in the struggling trainer retailer “for investment purposes” and may increase the holding to 29.9% (the max level before having to make a proper takeover bid), whilst stopping short of making a full offer. Footasylum’s share price rocketed up by 91% but the current price of 55.2p is way lower than the 164p it floated at in November 2017. * SO WHAT? * I had to double-take when I saw this as I didn’t see Mike Ashley’s name anywhere – he seems to be buying up the high street one brand at a time at the moment! Unlike things such as Patisserie Valerie, a trainer retailer is much more in line with his current businesses. Mind you, considering that the family of JD Sports co-founder, David Makin, are major shareholders and that Makin’s daughter is Footasylum’s chief exec with a 20% stake in the company you can see why Sports Direct is unlikely to get a sniff. David Makin is also a co-founder of Footasylum. Surely there will be some kind of takeover given the links between the two! If it did go through with a full acquisition, it could give JD Sports a juicy cost-cutting opportunity – but would it be juicy enough??

Samsung has announced plans for new phones and Citi is looking at robots to provide better services…

Samsung plans trio of phones to stem sales fall and head off Apple (Daily Telegraph, Matthew Field) shows that the South Korean handset maker is continuing in its battle to stay ahead of the competition and boost global phone sales by launching three new smartphones at events in London and San Francisco. The main device is expected to be its flagship S10 smartphone, which will have a triple lens camera as well as a larger “Plus” derivation model. It also plans to unveil a cheaper phone to its main line-up. * SO WHAT? * It’s a bit meh, but worth mentioning. As far as I’m concerned, handset makers need to announce something truly innovative in order to get pulses racing and cash registers ringing (well the latter is metaphorical – maybe “beeping” is a better word). If not, smartphone sales

will continue to decline as replacement cycles lengthen and new models continue to be only slightly better than previous ones.

There’s bad news for some in Citigroup CEO says machines could cut thousands of call centre jobs (Financial Times, Laura Noonan and Patrick Jenkins) as Mike Corbat commented in an interview with the Financial Times that tens of thousands of people working in its call centres could be replaced by machines that will be cheaper and provide better service to customers. The bank is facing continued pressure to cut costs and last summer warned that as many as 10,000 operations staff in its investment bank could be replaced by machines. * SO WHAT? * This just provides more evidence of how Artificial Intelligence will change the identity of the workforce and said that the “30 most common customer journeys” were relatively easily automated. I think that any job that is predominantly process driven will be particularly vulnerable to AI and automation.

And finally, in other news…

Today, I thought I’d give you an idea for a new hobby: In France, the Force is strong with lightsaber dueling (Associated Press, John Leicester https://tinyurl.com/y5o55xpy). Sounds like fun!