Comments at the recent Center for Automotive Research meeting on “Supplier Challenges, Investor Opportunities” included some optimism that things are certain to get better – once they worsen first. The optimism, such as it was, centered on the basic idea of a burning system in the automotive industry. “I think the will for survival may cause these companies at the bottom to make gigantic adjustments,” said John Casesa, managing partner of Casesa Strategic Advisors.
But he and other audio speakers said there will continue to be a major shakeout of suppliers first. For example, Brad Coulter, director of Amherst Capital Partners, said that a third of the nation’s tool and expire shops – 4,000 out of 12,000 – have closed because the yr 2000 – and we still have overcapacity.
Meanwhile, prices have dropped up to 30 % in the last four years. Casesa commented that the problems facing Detroit are structural, not cyclical. “I think it really is that bad now,” he said. “This turmoil is upon us right now. He added, “Business failures and liquidations may be required. Companies have to go away.
He also said, “The data tell me: the local companies will continue steadily to lose share for the near future. What will it around try to change things? “Right now the primary theme is shrinkage,” Casesa noted. “It’s an absolute necessity but probably not sufficient. Tom Stallkamp of Ripplewood Holdings alluded to lean principles when he said “You have to get a culture where internally they know they need to generate cost reductions” that are higher than price cuts.
However, he displayed some pessimism that suppliers understand that. “You can’t believe how unbelievably juvenile some of the business plans of suppliers are,” he said. Aversa also designated information technology as a location for improvement. “You are spending too much on IT probably,” he said. “We say that it’s time for lean IT.
- Lab-grown hamburgers
- The expenses are considered common and necessary
- Regulations are evolving for business cleverness
- Discretionary funding needs implies
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- Louis A. Allen
- Country – 9.8%
- Laptops, PCs, tablets, monitors, keyboards, mice, mousepads
Term – how long does the franchise last? Do you want to have the choice to renew it, and on what conditions? Territory – what area does your franchise cover? Do you have exclusive rights to sell within it? Fees – what initial charge shall you pay? What percentage of sales revenue will you pay? Will you pay a regular management charge – and if so, exactly what does it cover?
Will you have to pay other costs? How will be the costs exercised? Support – how much help do you want to get to start the business? What continuing support will you get? Restrictions – what limitations are there on what you’re allowed to do and exactly how you must run the business? Exit – what happens if you cannot continue in the business for reasons unknown – perhaps credited to sick health? What happens if you want to market your franchise?
OK, and there are around 69 million fully diluted shares excellent, so let’s use that to get operating EPS, or as a proxy for pretax cash flow (remember, we like to price things at 10x pretax earnings). 0.87/shares in operating profits. 8.70/share, not from where it is trading now significantly. 0.51/shares and PZN love to pay 70%-80% of non-GAAP profits out as dividends. 0.40/talk about, which is virtually what they paid in 2015. And 2015 wasn’t even a great year by any means (funds were down).
