MD writes:


Tesco reported another sparkling set of results this week and they do look like they now have critical mass, much like Wal-Mart in the US. One can assume that for at least the next 2-3 years they will continue to consolidate their position, as for example they were doing this week with the purchase of 9 Safeway stores from Morrison’s.

So what about the rest? The jury’s out for Sainsbury’s – they should reclaim some lost ground as the favorite of the Middle Classes despite the steady progress of Waitrose. Why? Well, Waitrose is too expensive and they lose out in the smart suburbs where M&S have the Simply Food format. There is also a whiff in the air of a Sainsbury’s fight back: stores are beginning to show the benefits of investment – they’re cleaner, the trolleys work and the car parks are looking less of a shambles. As for the rest, Morrison’s will turn the corner with the Safeway acquisition and continue to (re) gain market share.

What of the losers? Strangely (and against market sentiment) it may well be Asda, owned by Wal-Mart. The stores are dowdy, their ranges are at the cheap end and their previously effective "knocking" ad campaign looks to have lost its edge. All in all, they’ve gone quiet because the results haven’t been quite so good lately and they won’t beat Tesco - much as K-Mart can’t compete with Wal-Mart in the States. In addition, they will be pressured at the top end by Sainsbury’s and at the bottom by both Morrison’s and Tesco.

It’ll be a sad day when car-making stops at Jaguar’s Browns Lane plant. Modern pundits like to argue that if the brand is strong enough it doesn’t matter where the cars are built. They say look at BMW and Mercedes who both successfully build cars in the US and elsewhere. Well, up to a point. What these arguments miss is that BMW & Daimler-Benz remain headquartered in Munich and Stuttgart, and they very definitely continue to make cars at their HQs (where one assumes the “je ne sais quoi” of a car, its DNA, resides). Poor Jaguar were saddled with the Halewood plant at Ford’s behest when they already had Browns Lane and Castle Bromwich and were producing comfortably less than 100,000 cars per year. What on earth did they need Halewood for? Miles from HQ to boot? As opined by the FT (23/9/04 edition), once landed with the huge fixed cost of Halewood it’s no wonder they’re losing money. Something had to give, and it’s Browns Lane.

Still, we should not ignore the genuine strides made with Jaguar. When Ford bought them 15 years ago, they were struggling to produce 50,000 cars a year, quality was poor and the plant antiquated (editor: some Ford execs said at the time they had not seen similar factory conditions outside Eastern European). All this has changed. But unfortunately for Jaguar, whilst Ford revamped the range, they did not invest in a diesel. BMW and Mercedes volumes are impossible without them, however good the product. At the same time, Ford persisted in setting unrealistic targets. They also ignored that the German brands’ massive sales did not happened overnight – they are the product of continuous investment in product, marketing and a careful widening of their ranges and markets.

Finally, let’s be very clear, Ford would love to shut up the manufacturing shop in the UK, and sooner rather than later. Successive UK Governments have shown a willful neglect of manufacturing (as well as R&D, science and pure research) which, together with increasing red tape, gradually results in the country no longer being a good place to do business in.

Saab (GM)
So GM needs to cut 3,000 jobs in Europe? The Saab plant at Trollhatten is apparently threatened despite having a significantly greater productivity per worker than the Opel plant at Russelheim (124k car with 3,200 workers vs. 141k cars with 5,400 workers).

If Trollhatten goes then GM might as well write off the whole investment in Saab (see DNA above). One might argue that this should have happened years ago given that GM wanted Saab and then failed to make the necessary long-term investments. Yes, they have invested and heavily. But they never seriously said "where do we want to be 10 years from now and how do we get there?" What Saab has had are emergency injections of funds to support losses. And now, after 15 years of control GM is saying Saab needs to broaden the range if they are to achieve critical mass. Well ‘scuse me! But any fool could have told them that 15 years ago. GM just doesn’t get it!

British Energy
“Man bites dog!” Well not quite, but the board is playing tough with the hedge funds who now control what remains of the British Energy equity And about time too, some would argue. The hedge funds have had things too easy for too long – wanting the rewards of ownership (cash) without the responsibility.

This saga continues to drag its way through the courts and some pundits say the shareholders are getting a rough deal. Well, maybe. But the British taxpayer is effectively bailing them out rather than leaving them with nothing. And do those same shareholders seriously expect 20-25% of the country’s energy supply to be allowed to go to the wall overnight? Get real. No, let’s give it another 5 years and then start turning the lights out gradually (witness the UK Gov’t view that we can do with nuclear and rely on wind farms). Much better that way.

This contributor is considering investing a small amount in a stakeholder pension (editor: just how many pension plans do you now have?!”) and was astonished to find that he was required to identify himself in order to satisfy anti-money laundering legislation! Er, is it me? The only laundering happening here is of the poor sap that invests his funds only to find 20 years hence that they are worth half what he put in! But seriously - would a money launderer want or need a pension? And could he wait that long? As Homer Simpson would say “Doh! It just gets worse and worse!”

Can’t think why, but those rocket scientists in the City are against DFS being taken private (at least at the price being offered by Lord Kirkham). One must assume that they have a suspicion that they’re being stiffed. The market allegedly only looks forward, so remove those rose tinted specs, lads. The shares at £4.52 are at a 52-week high. It’s a no brainer: Kirkham’s offering £4.89 - take the money and run! If the management and their bankers are foolish enough to want to take the company private, then let them. The furnishings sector is badly exposed to any petering-out (editor: collapse?) of the house-buying surge - shareholders might well rejoice at Lord Kirkham's efforts.

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