Saturday, January 30, 1999
Automaker mergers gain speed
Companies yield to global forces
BY BRIAN S. AKRE
The Associated Press
DETROIT — Falling prices, too much production capacity, economic turmoil in Asia and the resurgence of the world's biggest automakers are driving a round of mergers that could lead to a leaner auto industry with fewer competitors.
Last year's merger of Chrysler Corp. and Germany's Daimler-Benz AG forced automakers to reassess the economic factors shaping the industry. Thursday, Ford announced plans to buy the car business of Sweden's Volvo AB for $6.45 billion, and more deals are expected.
“The reason the DaimlerChrysler merger greased the gears is it was of such a size that it changed the pecking order of the industry,” analyst Lincoln Merrihew of DRI/McGraw-Hill said. “One would have thought that Daimler and Chrysler were big enough to survive on their own. They obviously didn't.”
Among likely players is debt-laden Nissan Motor Corp., which has made no secret of its desire for a rich suitor. Others reported to be looking for partners include No. 1 General Motors Corp., Germany's Volkswagen AG, Italy's Fiat SpA and Renault SA of France and even the new DaimlerChrysler AG.
While consolidation will result in less competition, some experts argue that these bigger companies will
be more efficient, eventually benefiting consumers, either in the form of lower prices or more features for the same price.
“It's a positive for consumers,” said David Cole, who directs the University of Michigan's Office for the Study of Automotive Transportation. “Right now, the industry's too broken up, too fragmented.”
Auto executives are convinced that only the biggest players with the ability to spread staggering development and manufacturing costs over millions of vehicles will survive in the 21st century.
“That is the case for all the talks now in Detroit,” Juergen Schrempp, co-chairman of DaimlerChrysler, said at a recent industry conference. “Everyone analyzes the situation. Everyone, in fact, comes to a similar conclusion because the facts are clear.”
The facts are that worldwide demand is not enough to support the industry's production capacity; that Asia and Latin America — both big potential markets — are in recession; that automakers can no longer increase prices to cover rising costs; and that the biggest automakers in the United States and Europe are getting nimbler and stronger.
That means that it's getting harder for automakers to increase profits without reducing the costs of engineering, building and selling vehicles. By merging, they spread those costs over more vehicles.
All this spells trouble for small, independent automakers and those larger ones in Asia that are struggling under a load of debt in a weak Asian market, especially Nissan.
Smaller automakers also lack the resources needed to compete in the race to find a replacement for the internal combustion engine.
Significant consolidation already has occurred since 1960, when there were 42 independent automakers worldwide. If the Ford-Volvo deal goes through, there will be 16. DaimlerChrysler Co-Chairman Robert J. Eaton predicts only 10 major independent automakers will remain within a decade.
Among the other important deals in the past year: VW bought Britain's Rolls Royce and Bentley luxury car lines while Germany's BMW AG got future rights to the Rolls-Royce brand; VW also acquired Lamborghini, an Italian sports car builder. In Korea, Hyundai Motor Co. outbid Ford to take over bankrupt Kia Motors Corp.
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