IMI Magazine

IMI Magazine

Made in Heaven and Hell

Eyebrows arched high with disbelief when Renault and Nissan announced that they were getting together. In contrast, Ford’s move to hedge its bets by adding prestige brands to its volume business was thought at the time by industry analysts to make good sense. As things turned out, of course, Nissan was saved from the brink of collapse and Ford’s premium portfolio has yet to shine on the balance sheet.

So can that rueful phrase “the benefit of hindsight” be usefully employed when carmakers plan their next round of mergers, acquisitions and alliances?

In some cases complete takeovers or equity stakes are based on solid business foundations – for example, the wish to maximise economies of scale and establish regional or global manufacturing networks. Some are tinged with opportunism, illustrated by  small volume producers – such as Jaguar and Saab – who have been absorbed by larger groups. Others, though, have defied logic and seem to have been based on management whim or political pressure. 

Political meddling was to sound the death knell for Rover when, during the 1960s and ‘70s, the government – fearful of job losses – tried to prop up Britain’s car industry by pumping taxpayers’ money into British Leyland. Then followed the ignominious episode involving BAe and Honda before BMW’s inexplicable part in this tragi-comedy. While BMW took little time to restore its reputation, German pride was to take another knock with a phrase that was to haunt Daimler-Benz, “the merger of equals” with Chrysler. Seven years on, DaimlerChrysler’s counting the cost of that equality with a market value less than that of Daimler-Benz before unification.

The tale had an added twist with Chrysler, the weaker of the two at the time of the merger, now in better health than its partner, thanks largely to the stewardship of Dieter Zetsche. All eyes are now on Zetsche to see if he can “do a Ghosn” on Mercedes-Benz now that he has overall responsibility for Daimler Chrysler. Carlos Ghosn achieved revered status within the motor industry by tackling the improbable combination of Renault and Nissan and writing himself into MBA textbooks.

No such accolade is imminent for Bill Ford and Rick Waggoner, the men heading Ford and General Motors. Ford’s acquisitions of Aston Martin, Jaguar, Land Rover and Volvo have yet to yield rewards for its Premier Automotive Group division; Jaguar, notably, has been a serious drain on resources since the 1989 purchase, while Land Rover’s £228m loss last year is another thorn ripping into Ford’s balance sheet. 

GM had its eye not on prestige badges but the more mundane goal of cutting costs in Europe through joint ventures when it took a stake in Fiat Auto. The venture turned sour as Fiat continued its downward spiral and GM was left with a £1bn-plus bill for pulling out of its ‘master agreement’ to take over Fiat. However, the two companies remain on amicable terms, with a collaboration deal on diesel engines.

More complicated is GM’s recent disposal of a 20% holding in Fuji Heavy Industries, owner of Subaru. This followed an earlier reduction of a stake in Isuzu, from 49% to around 8%. Part of the Subaru stake has been bought by Toyota. This is a company which has previously fought shy of investing in other vehicle producers, preferring instead to expand organically and establish its own brands from scratch – such as Lexus. GM, far from abandoning the Far East, is now seeking to build up its presence through GM Daewoo and a selection of ventures in China.

Switching back to Europe, nationalism has been a recurring theme, exemplified by Porsche’s holding in Volkswagen which, following recent purchases, now stands at almost 19%. Together with the stakes held by German institutional investors and the state of Lower Saxony, Volkswagen is probably safe from a non-German predator. Porsche says the increase in its holding has been spurred by the need to safeguard joint ventures, but it is hard to believe that emotion has not played a part – the more so since Ferdinand Piech, Volkswagen’s non-executive chairman, is also a leading member of the families controlling Porsche.

With past experience underscoring the risk of acquisitions and mergers, could carmakers be heeding the “benefit of hindsight” with a move to the safer ground of alliances? Fiat and Ford, for example, have joined forces to produce the next generation Cinquecento and Ka at Fiat’s Polish factory.

Then there is the grand-sounding Global Engine Manufacturing Alliance – the joint venture between DaimlerChrysler, Hyundai/Kia and Mitsubishi – with ambitions to produce 1.8m units a year from five plants in the US, Korea and Japan. Engines feature in another alliance, this time between DaimlerChrysler and GM, to develop hybrid power, with other vehicle manufacturers, including BMW, expected to join them.    

Critically, what will be the impact of all these incestuous relationships on brand values? Long gone are the days (if they ever existed) of a car manufacturer claiming a unique ‘DNA’ on its products. Consumers may be well aware of a Jaguar X-Type being a more expensive version of a Ford Mondeo, or an Audi TT having VW Golf underpinnings. After all, these models have the same parents. But it would take a real ‘transpotter’ to know that Mini diesels are sourced from Toyota, and that V6 diesels on the Renault Grand Espace come from Isuzu.

Just as the carmakers are seeking to cut costs with platform and engine sharing, so the ‘tier one’ suppliers are looking to standardise modules and systems. So seats, cockpits, suspensions and transmissions designed for one model or original equipment manufacturer can feature many components used for other models.

Owners of ‘budget’ cars may not be fussed by this commonality of parts, but it’s a challenge to promote the pedigree of a prestige brand when behind the badge is the motoring equivalent of a Heinz Avenue terrier.