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Пусенкова Нина

Other industries subjected to similar waves of new competition have seen dramatic shake-ups and the disappearance of famous names – personal computers offer a good example. Some observers predict just that: famous carmakers will own the technology and brands, while manufacture and distribution will be contracted out. (This already happens with a few low-volume cars, such as the Porsche Boxster).

Consolidation in the car industry has been going on since its earliest days when 200 garage-sized firms were bundled into GM. By the middle of the 20th century famous names such as Studebaker and American Motors were closing down or being acquired by stronger companies, leaving the industry in the hands of GM, Ford and Chrysler.

Consolidation in cars is not as starkly obvious to the consumer as it has been in, say, PCs. Many brands still remain, as mergers and alliances between firms have simply bundled, rather than destroyed, them. No fewer than 58 brands survive among the ten largest manufacturers. In fact, if their affiliates as well as their wholly-owned subsidiaries are counted, the top five company alliances account for 75% of the global market, while adding the next five takes this to 90%, with producers in China, India and Malaysia making up the rest.

The strategy of consolidating behind the brands has not been entirely successful: there is an inverse correlation between the number of brands a firm possesses and profitability. GM is still the big beast of the industry, but it is no longer in any shape to acquire others. It has twice the number of brands of its closest competitor, Ford, but it is second to last in the profitability league. Toyota, the industry’s profitability champion, has only four brands and a handful of models, but a huge range of variants on them.

The industry has experienced a 20-year splurge that has seen GM swallow Saab and Daewoo, while signing up Isuzu, Subaru and Suzuki in Japan. Since 1989, Ford, the next biggest brand-acquirer, has taken over Jaguar, Aston Martin, Land Rover and Volvo. But it, like GM, has done more spending than getting. Jaguar still bleeds cash after an investment topping $5 billion and Volvo until recently has been in the red. None of this has done anything for the company’s profitability, leaving it just above GM and weak Fiat.

Seduced by Scale

The two biggest consolidation deals in the industry are also the most recent: the takeover of Chrysler by Daimler-Benz in 1998, and the alliance of Renault and Nissan the following year. DaimlerChrysler has been a flop so far. It has taken years to revamp Chrysler, slashing its surplus capacity and reviving the brand with new products good enough to drag it back into the black this year. Meanwhile, top management attention was diverted from growing problems at home as quality slid at Mercedes, which lost its dominance of the lucrative German market to its archrival BMW.

The best justification for the DaimlerChrysler deal was the growing cost of electronics systems in luxury cars. Mercedes was the world leader in such sophisticated electronics, but it was not a volume car producer, which meant it labored with a higher cost base. Daimler’s hope was that, by buying Chrysler, it could enter the volume end of the car market. German discipline was to produce rewards in the world’s biggest and (for good manufacturers such as Toyota, Nissan and Honda) most profitable market.

It did not work out that way. Daimler and Chrysler together are worth less in stock market terms than Daimler alone was before the merger. In 2005 the architect of the deal Jurgen Schrempp was nudged out of his CEO’s chair by leading shareholders.

The deal between Renault and Nissan was a bold move by the French company to gain global scale. Having put its house in order, the privatized French company saw its market capitalization rise as that of loss-making Nissan slipped. So Renault’s CEO Louis Schweitzer grabbed the opportunity to give Renault global reach. He made the Japanese a friendly offer. But he was cautious enough to take at first only a 37% stake.

The French later increased their holding to 44%, as Nissan’s industrial debt was cut by profits and by disposal of the firm’s outdated equity stakes in its suppliers. The deal has paid off. Indeed, Nissan’s earnings have been supporting Renault, as the latter has gone thorough a bad period due to the ageing model range and stagnant markets.

So there are several reasons for the end of takeover activity: the binges of the past have left the predators with, at best, no appetite for more or, at worst, with severe indigestion. Moreover, what is left amounts to slim pickings, as GM found when it decided to pay a $2 billion breakup fee merely to go back on a hastily made promise to buy troubled Fiat, after five years of collaboration had shown the Detroit firm how weak its Italian partner was. This surreal episode was a prophetic moment. Once the very fact that brands with the glamour of Ferrari, Alfa-Romeo and Maserati were available would have produced a scramble among potential buyers. Fiat’s financial difficulties would have been regarded as an opportunity, not a threat. Today no one wants to take them on.

The Brand News

The lesson of two decades of frantic M&As in the motor industry is that acquired brands, however strong and attractive they might appear, take years to restore. They first need refreshing, then bending to the shape and behavior of the new family. And they need to be refitted with the new products worthy of the badge on the front.

GM’s unhappy cohabitation with Fiat was concurrent with its ownership of Saab, which it bought as a consolation prize when it was beaten to Jaguar by Ford. 15 years later that, too, looks like a mistake. A frantic upgrade program is underway to reduce costs through platform and component savings with other members of the GM alliance group. But using the corporate parts bin is a quick way to cheapen a brand.

And then there is Volkswagen, pride of the European predators. It used acquisitions to expand geographically – first southwards to acquire SEAT in Spain, then eastwards to take over Skoda in the Czech Republic. In parallel with a masterful 20-year rehabilitation of Audi as a prestige brand, VW also snapped up Bentley and Lamborghini from their distressed owners.

Bentley has been a fabulous success with its Continental coupe. Lamborghini has a couple of new street racers that look good but have not yet turned a profit. Critics want to know how VW will cope with Volkswagen, SEAT and Skoda brands all fighting for the middle market and competing with each other, and what it can do to recover from the recent slide in the share of the American market, where only a few years ago it was zooming ahead. Expected job cuts in Germany, maybe up to 10,000 of them, will not begin to address that problem, but might provoke damaging strikes.