Consolidation is the name of the game in auto industry

Updated on: May 30, 2019

Toyota’s Akio Toyoda with Suzuki’s Osamu Suzuki | Photo Credit: Tomohiro Ohsumi

Renault, FCA marriage proposal is the latest in a series of alliances

Nearly two decades ago, the auto industry gasped in astonishment when news of the Daimler-Chrysler merger broke out. This was truly a mega marriage from the viewpoint of scale and ambition. What was even more remarkable was that these were two companies that were culturally completely different from each other.

And this is precisely why the entire script went completely awry as the Germans and Americans tried hard to walk the tightrope. Eventually, Daimler and Chrysler separated after a difficult marriage and had to rebuild their homes all over again.

However, Fiat made a success story of Chrysler since its acquisition in 2009 and credit for this largely goes to the late Sergio Marchionne who had earlier played a big role in putting Fiat back on track. Today, FCA can bank on its track record with Chrysler to feel upbeat about Renault.

As in the case of Daimler and Chrysler, Suzuki and Volkswagen had a rough alliance even while they were super confident of a success story happening when they first signed up in 2009. It was just a matter of time before a lot of bitterness entered into the relationship and when the divorce eventually happened, Osamu Suzuki, Chairman of Suzuki, said he felt liberated and compared the feeling of clearing a bone that was stuck in his throat.

Today, Suzuki is in a happier place with fellow Japanese counterpart Toyota and though there is no equity participation yet, the partners are clearly working together towards a more cohesive plan. There is also greater cultural compatibility and the focus of this alliance is distinctly on India and other emerging markets.

Japan Inc clearly seems in consolidation mode as evident with Nissan-Mitsubishi and Toyota-Mazda (for North America). In the two-wheeler space, Honda and Yamaha have teamed up to jointly manufacture a niche segment of sub-50 cc scooters while, more recently, an electric consortium has been formed with Kawasaki, Suzuki, Yamaha and Honda.

In Europe, Groupe PSA has made a rapid success story of Opel and Vauxhall, which it acquired from General Motors in 2016. The French company was also in talks with FCA, which has since decided to go with Renault.

Ford and VW are in talks for a global alliance that will see joint efforts in pick-ups and electric mobility. VW’s truck division has joined hands with Hino Motors, a Toyota group company, to build a presence in the Asia-Pacific region as well as other emerging markets. Likewise, Daimler and BMW could forge a stronger alliance to cope with new challenges in the mobility landscape.

The Chinese have also emerged formidable names to reckon with in this rapidly changing world. Geely has made a success story of its Volvo Cars acquisition over a decade ago.

It is also the single largest shareholder in Daimler AG and Volvo Trucks, which means that the stage is set for some interesting collaborative dynamics in the product space.

It was also another Chinese company, Great Wall Motors, which had indicated its keenness to acquire the Jeep brand from FCA. Nothing much came out of this eventually but what was significant was the intent of Chinese dominance in the automobile arena. Remember, it was Dongfeng Motor that rescued now Groupe PSA when it was struggling to stay afloat some years ago.

SAIC will leverage its acquisition of MG Motors to grow its India presence and it will be interesting to see how customers here react to a British brand with Chinese parentage. As for Indian companies, Tata Motors did a remarkable turnaround job with Jaguar Land Rover after the 2008 acquisition. JLR was its biggest revenue generator for years but has been facing severe headwinds lately. Mahindra & Mahindra, likewise, bought out SsangYong Motors in 2011 and has worked relentlessly to bring it back on track and making the most of the synergies in platforms and sourcing.

A huge success story in the Indian two-wheeler space has been of Bajaj Auto and its Austrian ally, KTM where the Chakan plant near Pune has become a global hub for KTM bikes. This will soon be home to new brands like Husqvarna and Triumph.

Published on May 30, 2019
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