Fiat Chrysler Automobiles (FCA) and General Motors have been in the news lately for merger talks that quickly died a quiet death. It is now that FCA had reached out to the iconic American carmaker which did not think twice before rejecting the proposal.

It is an interesting turn of events for a host of reasons. Clearly, from FCA’s point of view, the fact that it is the seventh largest player in the automobile arena is hardly any source of comfort. Global dynamics are changing rapidly and there is really no guarantee if traditionally strong markets like North America and Europe will hold their own in the coming years.

Changing landscape To that extent, FCA’s keenness on a merger with GM makes sense since it perhaps sees itself as being potentially vulnerable in an unpredictable landscape. It was only a year ago when the same Fiat issued a denial on merger talks with Volkswagen. At that point in time, the Chrysler merger was still a work in progress which eventually became a reality subsequently.

Reaching out to GM now was possibly done keeping in mind that the two are not entirely unfamiliar with each other. It was during the turn of this century that they entered into an equity crossholding structure where GM picked up 20 per cent in Fiat with the latter settling for six per cent as its share. The idea was to collaborate on platforms and powertrain development but in five years, the marriage ended with a costly payout by GM. Was this the reason why it did not entertain a merger proposal this time around?

Be that as it may, GM continued shedding its stakes in companies like Suzuki and Isuzu. More recently, it picked up seven per cent in the beleaguered PSA Peugeot Citroen but exited that too. Its most significant global acquisition has been Daewoo which helped it stage a comeback in Asia-Pacific and Europe.

China is also a critical market where GM is the second largest player after VW and has strong ties with the likes of SAIC Motor Corp. GM has lately been cutting back on production in Thailand and Indonesia, indicating that India could take over from Korea as a strategic export hub.

Little wonder then that GM is not interested in a merger with FCA as it has drawn up its priority list for the reminder of this decade. Yet, this does not mean that FCA has it all wrong on its own forecast for the global auto industry. Who knows, it may now look at Suzuki Motor Corporation as an ally for the Asia-Pacific region. The latter, though, has still not got out of its alliance with VW even though it has made known its desire to call it quits. Till that time, VW still has 20 per cent in Suzuki intact and it remains to be seen when it will be ready to divest this stake.

Stronger together? Consolidation is the name of the game in the world auto arena. The biggest was Daimler and Chrysler nearly two decades ago which promised the moon but the mega marriage just did not work. Daimler also offloaded its stakes in Mitsubishi and Hyundai during this period and, today, has confined itself to a marginal stake in Renault-Nissan which, incidentally, is a good reference point for a successful alliance.

Another French carmaker almost went down the same route more recently but things did not quite work according to plan. Peugeot and Mitsubishi were in talks for a global partnership though nothing finally materialised. The company then went through a rollercoaster ride during the slowdown in Europe and now has Dongfeng of China as its ally. Today, Peugeot is focusing all its energies on building this new partnership which will explore business opportunities in the ASEAN region too.

BMW, Ford, Toyota, Honda and Hyundai have pretty much steered clear of any mega alliances even though they could have tie-ups with fellow carmakers for specific projects on hybrids etc. VW, on the other hand, is constantly on the prowl for interesting targets to add to its formidable kitty of brands such as Audi, Skoda, Bentley, Lamborghini, Porsche, Scania and MAN.

As in the case of Fiat’s CEO, Sergio Marchionne, his counterpart at Renault-Nissan, Carlos Ghosn, also believes that the world is rapidly changing which makes it imperative to think ahead of the curve. In India, he took the lead in forging alliances with a slew of partners like Mahindra, Bajaj and Ashok Leyland for different projects. Two of these did not work but that has not deterred Ghosn in his quest for new solutions. After all, it was thanks to him that Renault bailed out Nissan which has now emerged a strong pillar of support.

Going forward, China’s power will be on full display in the automotive space as it grows from strength to strength. Some of its companies have already been in the news for acquisitions like Nanjing which snapped up MG Rover some years ago. More recently, Geely bought out Volvo Cars and the future could see some aggressive moves by other Chinese companies.

It is China, with annual production of 17 million cars, which is a critical lifeline for VW and GM in particular.

In the process though, local automotive brands like SAIC, FAW, Changan, Great Wall and Landwind will be keen on replicating a script like Geely’s.

No wonder, Fiat Chrysler is keen on protecting its turf as the inevitable shift in balance happens.

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