Just over two years have passed since Daimler-Benz and Chrysler changed the face of the automotive industry with the announcement that they were to merge. Their union was a defining moment for the consolidation of the automotive sector.
Up to then the motor business had been characterised by large, strong companies taking over small weak ones. But both Germany's Daimler-Benz and the US Chrysler Corporation were big powerful companies well capable of surviving alone.
Their decision to merge had been a closely guarded secret. The surprise announcement was made in May 1998 and it sent shock waves throughout the motor industry. If wealthy giants such as DaimlerBenz and Chrysler believed they needed this alliance, where did that leave the smaller, less powerful players?
Explaining their decision to merge, Mr Jurgen Schrempp of Daimler-Benz and Mr Bob Eaton of Chrysler said they were thinking long term. Both organisations had the ability to be highly successful in the short term. What their respective bosses wanted, however, was to secure their futures with a strategic partnership that would increase volumes, broaden their global base and allow both companies to expand into new market segments.
The merged entity would also cut billions in costs out of their respective production processes, there would be technology transfer between the two companies and shared business practices.
Things have worked out a little differently in practice. What appeared at first glance to be a so-called "merger of equals" was effectively a Daimler take-over and the planned corporate integration turned out to be a lot more difficult to effect than had been anticipated. But whatever the problems at the newly created DaimlerChrysler group, their coming together was the catalyst for the huge wave of consolidation within the motor industry which has followed.
Fuji Heavy Industries (Subaru) increased its stakes in Isuzu and Suzuki. Toyota did the same with Daihatsu and Hino. Ford bought Volvo and subsequently Land Rover, Audi acquired Lamborghini and Hyundai took control of the troubled Kia. In March this year General Motors bought a 20 per cent shareholding in Fiat Auto.
Daewoo (now in play itself) won the bid for Ssang Yong and DaimlerChrysler has signalled its interest in further expansion by taking a controlling 34 per cent stake in the troubled Mitsubishi Motors Corporation. Renault took a controlling interest in the troubled Nissan, but in so doing opted to keep the two companies at arm's length. There has been some movement of personnel and sharing of ideas, but Renault does not see the deal as a merger and, unlike DaimlerChrysler, it did not try to create a common culture. Renault's word to describe the relationship between the two is "bi-national". In March, Renault also submitted a bid for Samsung Motors.
But whatever about semantics, the scale of these alliances, mergers and take-overs is totally changing the car manufacturing landscape. It also points up just how small and vulnerable the remaining independent companies are in the face of such merger mania.
PSA (Peugeot-Citroen) produces around 2.5 million units a year. Honda's output is much the same, while BMW, without Rover, has an annual production level of approximately 750,000 units. This puts the German company back to square one, as a key reason given for its purchase of Rover in the first place was to achieve the scale required to survive globally in the long term. What may protect BMW from predators, however, are its margins which are the envy of the motor industry. It heads the league table with margins of 11 per cent on its products compared with less than 8 per cent at DaimlerChrysler.
Germany is not without "small-s-beautiful" success stories in the motor industry. Porsche sells less than 50,000 cars a year, yet it is a highly profitable company. Apart from producing cars, it makes good money carrying out engineering contract work for other manufacturers and it also enjoys the protective ownership of the Porsche and Piech families.
Indeed, family dynasties may yet have the final say in how the motor industry will look in another 10 years. The industry is still one of the few sectors in which family ownership remains strong. The Agnelli family, which owns 30 per cent of Fiat, has always insisted that it will stay loyal to the company (although its power has been diluted by the sale to GM), while any change in ownership at BMW would be impossible without the approval of the Quandt family which owns just more than 45 per cent of the company's shares.
The Quandt family says it is not selling and anyone considering a bid for BMW would need deep pockets. Industry analysts estimate BMW would cost a prospective buyer $29 billion-$38 billion (€33.74 billion-€44.21 billion). Ford only paid $6.5 billion for Volvo.
Families seem to have a problem letting go in the motor industry. It took the Wallenbergs of Saab a decade to sell up, while family members still hold key positions in Ford and, despite Rover's £4 billion losses, the Quandts are still sitting tight at BMW.
Another company with a question mark over its future ownership is the PSA group. Members of the controlling Peugeot family were reportedly interested in selling, but after a decade in decline Peugeot/Citroen is thriving and its shares rose by more than 70 per cent in 1999. Peugeot (along with Porsche) was one of a few European automotive stocks to outperform the market last year.
But although these smaller companies are currently doing well, there is a widely held view that they will eventually have to consolidate because of their scale. The fact that Fiat finally decided to link up with GM is the clearest indication yet that more such alliances are likely to follow.
What the creation of big powerful groupings (such as DaimlerChrysler and Renault/Nissan) does, however, is to restrict the parameters within which future alliances can take place. Ultimately there is an expectation that the motor industry will consolidate into five or six major groups (with a small number of specialist niche manufacturers) each producing around 15 million units a year.
