MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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You got it, Toyota

Nir Kossovsky - Wednesday, February 17, 2010
Headaches. In case you've been unplugged this past year, Toyota Motors Corp (NYSE:TM) is experiencing an intangible asset value meltdown. Highly valued behaviors that became watchwords for Japanese manufacturers—ethics, quality, safety—appear to have recently fallen out of favor at this iconic firm.

It's been a few weeks since we looked at the automobile sector, and we will give this topical sector a robust treatment in our regular corporate reputation series in IAM Magazine issue 41. For now, a teaser.

At the of end of Q1 2009, the Steel City Re Corporate Reputation Index showed a precipitous decline in Toyota’s reputation relative to a sample of large publicly traded firms on the US exchanges. Honda Motors (NYSE:HMC), a Japanese-headquartered competitor, is one of the reputational beneficiaries. Its all relative. Shown in the charts below, the Reputation Index metric for TM drops from the 80th percentile to the single digits and generally holds there for the balance of 2009. HMC, on the upswing from early 2009, peaks at the 90th percentile before ending the year 30 percentage points net up at around the 50th percentile.

As for economic returns over this same period, TM rewarded its shareholders with a 45% ROE (S&P was up ~21%). HMC rewarded its shareholders with an 80% ROE.


Government motors, not! (and we'll prove it)

Nir Kossovsky - Friday, October 09, 2009
Ninety days ago today, on 10 July, General Motors (fomerly NYSE:GM) emerged from bankruptcy. At an auto show this past weekend, Robert Lutz, the ‘new”  General Motors vice chairman of marketing and communications, said, “The world does not realize how great today’s GM products are." Lutz said GM is not afraid to back up those comments. He is heading the team that has started a new “may the best car win” ad campaign, “Our products are equal or superior to the competitors.”

While some members of our Society may know much about cars, as a group we share common interest in the concepts of quality and reputation, and we recognize that communications are an integral step in the process by which stakeholders form impressions that culminate in a company's reputation. In view of Bob Lutz's challenge, we thought it would be interesting to baseline business sentiment in the media covering the Automotive sector. As before, we use use the Financial Times' Newssift engine for the sentiment analysis.

We searched for articles in the business press covering both reputation and one of these five automobile companies: General Motors (GM), Ford (NYSE:F), Toyota (NYSE:TM), Honda (NYSE:HMC), and Daimler (NYSE:DAI). We broke down the data into the 90 days prior to GM's emergence from bankruptcy, and the 90 days following, and using the Newssift engine, sorted articles by sentiment: positive, neutral, or negative. Here are the results.

With respect to business press articles that had a positive angle, GM and Daimler showed little change. Positive articles comprised about 1/3 and 1/2 of the news stories, respectively. Positive articles about Ford and Toyota increased from about 1/3 to nearly 1/2. Positive articles about Honda dropped from nearly 1/2 to less than 1/4, although the total number of articles about Honda in each case, 25, is small compared to the total of 1139 articles analyzed.



With respect to business press articles that had a negative angle, GM and Daimler again showed little change at around 20% and 11% respectively. Negative articles about Ford dropped from 25% to 13%; they rose for Toyota from 13% to 20%. At Honda, they remained the same at 4% which represented only one article for each period. For those of you keeping score in the reputation sweepstakes, the current winner following GM's emergence from bankruptcy is Ford.

 

Turning now to the economic returns over the 180-day period, looking at the chart adapted from BigCharts.com, so far Ford is leading with an ROE of about 70% followed by Daimler at 40%. The S&P500 is up about 20%. As they say in the business, the race is on. And as Bob Lutz says, may the best car company win. Stay tuned.

Fast lane

Nir Kossovsky - Thursday, September 17, 2009
As he made his way here to Pittsburgh, home of the Intangible Asset Finance Society, to address a gathering of union leaders on Tuesday, US President Obama stopped by a General Motors plant in Ohio, where he said the government’s intervention in the automobile industry “may not have been popular,” but helped jumpstart the struggling sector. Let’s take a closer look at the sector from the Society’s perspective.

Let's first look at the reputation metrics from the Steel City Re IA (Corporate Reputation) Index? from 22 April when we last looked at this sector. The Index, which correlates with reputation surveys such as those published by Forbes, Fortune, and Harris Interactive, captures the financial implications of stakeholder behaviors and expectations of stakeholder behaviors as determined by corporate reputation. The Index is a good leading indicator of financial performance and returns on equity.

At that time, Ford (NYSE:F) showed a rising IA index and decreasing EWMA IA Index volatility with a final log magnitude of 2 while GM (NYSE:GM) showed opposite directional movements and a final volatility log magnitude of 3. From these data, we projected great financial results for the former, and ongoing dismal financial results for the latter.  Honda (NYSE:HMC) was our highest ranked automotive firm on 22 April.

Let’s see how those financial projections panned out as demonstrated in these graphs from BigCharts.com.



Since April, Ford has returned nearly 100% on equity; GM has lost nearly 65%, and Honda (which had returned 45% for the year until 22 April) still had some firepower left and continued to move upwards, but underperformed the S&P500 for this period.



If we take the long view of a 2-year return, Honda just barely beats Ford but is in negative territory; both outshine the S&P500 which is about 30% off from the 2007 peak, and GM is, well, "underperforming."

Let's wrap this up with an homage to reputation management. Kudos to Ford for demonstrating the power of reputation mangement, and its ability to create value on the basis of expectations of further great things to come. This type of financial result is exactly what the Society seeks to promote. And kudos to Honda for demonstrating the power of a superior reputation to forge resilience. This type of financial resilience is exactly what the Society hopes will motivate companies to exercise best practices in the management of their intangible assets.

A tale of two chassis

Nir Kossovsky - Wednesday, April 22, 2009
Over the past year, the monolithic big three US auto companies have resolved into their individual identities revealing, a rising Ford Motor Company (NYSE:F) and a sinking General Motors Corporation (NYSE:GM). Among the 11 companies that comprise the Automobiles sector, Ford has outperformed its peers by 6.23% while GM has underperformed by 44.9%.

Looking at the reputation metrics from the Steel City Re Intangible Asset Finance (corporate reputation) Index below, Ford shows a rising IA index and decreasing EWMA IA Index volatility with a final log magnitude of 2 while GM shows opposite directional movements and a final volatility log magnitude of 3. Our question to you - what business processes do you think are the most important drivers of corporate reputation in this sector: safety, innovation, quality, sustainability, ethics or other?  We look forward to hearing from you on this blog (post a note) or email the Society at secretariat@iafinance.org.

By the way, in case you were wondering, the number 1 ranked firm in this sector as of 17 April is Honda Motor Company Ltd (NYSE:HMC) with a return on equity this past year of 45%.




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