• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Thatcher, cars, recovery and investment

0
  • by James Bevan
  • in James Bevan · LGPSi · Recent Posts
  • — 22 Apr, 2013

This has been a week in which the Thatcher period has been much re-visited in the media, and I can remember many of the events described, including the extraordinary re-positioning of UK industry. Many people have commented on the mining industry and the unions, but as a student of economics in the 1970s, I was quite focused on the car industry with the white paper on the future options for the motor car manufacturing required reading as we contemplated what might happen. The general mood was gloomy and without the Thatcher years, frankly British industry would have struggled and retreated very much as it had done for years before her first election victory. For sure the dismantling of protective barriers to the free flow of capital and trade accelerated changes already underway, but it was the combination of greater foreign competition and the UK’s higher cost base that made inevitable the decline of traditional industries managed and manned such that unit production costs exceeded those of competitors.

But whilst this last week, commentators have suggested that the Thatcher years led to the decline of core manufacturing industries, and point to the near wipe out of the ‘mass market’ component of the UK car industry, we should sit up and note that this year the UK car industry is actually expected to make more cars than ever before.

The key issue is that the cars that will be made in Britain are niche vehicles such as 4×4/luxury SUVs and sports cars, rather than the types of mass production cars that were once made on the now demolished Dagenham site in East London.

What’s particularly interesting to reflect upon is that the price of these niche cars – such as Aston Martins and Landrovers – have remained a reasonably stable multiple of average UK house prices (and house prices are arguably the key non-traded goods price that lies at the base of an economy’s cost base) while the prices of mass market cars has clearly declined sharply relative to house prices and hence the economy’s basic production costs. Thus if we look at the price of an Aston Martin DB model relative to the price of an average house in the UK although there is some year to year oscillation in the price that seems correlated with global markets and the company’s own product cycle, in general the price of a Aston Martin has been the equivalent of 1.2 to 1.3 times that of an average house for the last 50 years. In contrast, the price of a Ford Anglia/Escort/Focus relative to house prices has fallen away and therefore little wonder that the manufacture of such vehicles has moved from the UK. It just wouldn’t be profitable to make such vehicles in the UK given the rise in this country’s cost base.

As to what all this has to do with investment, we can offer three key observations.

First, the re-positioning of the UK car industry in a global context represents a useful and generally applicable approach to determining how we should pursue global recovery with focus on competitive strengths rather than relying on central banks to print more money or support currency devaluation. Thus Japan’s attempt to devalue its currency in the hope that it will allow its car makers to produce low end car models profitably once again, despite heavy competition from emerging economies in this sector of the market, will ultimately fail, unless there is a fundamental re-jigging of costs and productivity.

Secondly, the Thatcher period saw and invoked great change. We face changes of even greater magnitude as developed economies work through de-leveraging in the context of global free trade and open markets. Looking ahead, the wise investor will want to think about sustainability and sustainable growth, and to constrain risk, investors will likely want to confine consideration to enterprises that are delivering positive free cash flow returns, such that the risk that balance sheets go horribly wrong is likely limited.

Thirdly, good quality companies that can demonstrate competitive advantage and can evolve to support shareholder value can be identified in most economies and many industries. Where they operate is of much lesser concern than what they do, how they do it, their cost and capital structures and their commitment to value added. This argues for a global and unconstrained approach to stock selection and portfolio construction.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccl

Share

You may also like...

  • James Bevan: Portfolios and China’s role in secular stagnation James Bevan: Portfolios and China’s role in secular stagnation 11 May, 2016
  • John Harrison: Is LGPS ready for rising interest rates? John Harrison: Is LGPS ready for rising interest rates? 19 Jan, 2016
  • James Bevan: deflation expectations James Bevan: deflation expectations 20 Apr, 2016
  • Economic update on China Economic update on China 21 Aug, 2012

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 4 hours ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 4 hours ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 1 day ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 1 day ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 1 day ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 2 days ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 2 days ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 2 days ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 3 days ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 3 days ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 3 days ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 4 weeks ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

    Room151 4 weeks ago

    Room151’s top stories from a momentous year: 2020 was the year in which local government grappled with Covid-19, funding strains, controversy over borrowing rules and the threat of financial collapse. It has been an exhausting and historic[...] dlvr.it/RnlpZg pic.twitter.com/g3myNyox6J

    Room151 4 weeks ago

    Tracy Bingham: 2020, a year best forgotten but also one of learning: Many will rush to erase 2020 from their memories but, writes Tracy Bingham, there were also many lessons about finance teams, strategic planning and leadership. 2020: A year we’d… dlvr.it/RnlpY2 pic.twitter.com/m7G1krrtCu

    Room151 1 month ago

    Settlement must address ‘precarious’ local government finances: Dan Bates crosses his fingers for “no nasty surprises” in this week’s funding settlement but argues the “bigger prize” is post-Covid financial certainty. Thursday (17 December) should be the… dlvr.it/Rnj9dG pic.twitter.com/KLKjjuBqJE

    Room151 1 month ago

    PWLB consultation: Big change on the way but there are ‘grey areas’ and opportunities: The consultation on PWLB borrowing has concluded creating a new landscape for funding property acquisition. Our experts look at the implications. Tracie Langley The… dlvr.it/RndRvJ pic.twitter.com/KEqXEBmEfq

    Room151 1 month ago

    2021: Better income outcomes?: Sponsored article: Investors should be mindful of structural challenges posed to income generation as a result of rapid thematic change. Jon Bell looks at the prospects for the coming year.[...] dlvr.it/RndRsw pic.twitter.com/TxVk8aXkMq

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Merrick Cockell, LAPFF Activism, Wandsworth Eyes Mutuals, CIL Consultation, VNAV Worries
  • Next story FLS re-worked after mixed results

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK