Car Makers Are Checking Their Rear-View Mirrors
The historic alliance of Germany’s Daimler-Benz and America’s Chrysler rippled through Tokyo, Detroit, Frankfurt and other auto capitals Thursday as the world’s three dozen or so other car makers wondered if they will--or should--be next.
Is Nissan, its stock at fire-sale prices, in someone’s cross-hairs already?
How can Fiat and Peugeot survive on their own after 1999 when the likes of Toyota can compete unfettered in Europe?
Why doesn’t somebody buy up the Koreans and cancel all those unnecessary factories they’re building?
Will the Mercedes mystique carry over to Chrysler, hurting General Motors and Ford in Pasadena?
The company to be called DaimlerChrysler is forcing the global industry to rethink its ongoing consolidation. The likely answer: It will be speeded up, reducing the number of full-fledged auto producers by perhaps half over the next decade.
The process has been gaining steam for years. Last year, according to a new Price Waterhouse global study, there were 602 auto-industry acquisitions worth more than $18 billion--most in the huge, low-profile network of companies that make automotive components.
But the DaimlerChrysler combine dwarfs all previous such efforts, and the sophistication and resources of the partners have huge implications around the world.
UNITED STATES
The quips have already started--with time they’ll probably even get funny: “There’s no truth to the rumor Ford will merge with GM,” one consultant deadpanned Thursday, “and you didn’t hear that here.”
In fact, the takeover opportunities in the all-important U.S. market seem far-fetched: GM and Ford are still the the world’s two largest auto producers, and their presence overseas is as formidable as it is at home.
“There’s nothing else to buy in the U.S.,” says AutoPacific Inc. analyst James Hall.
But GM and Ford will have to redouble efficiencies and scramble to match the newcomer’s engineering and styling savvy to compete on their home turf. One market to watch: minivans, pickup trucks and sport-utility vehicles, which make up nearly 60% of Ford’s total sales and almost half of GM’s.
Chrysler also is a strong player in that highly profitable market, and Daimler engineering and components could give Chrysler quick access to new products. Meanwhile, Chrysler’s nationwide dealership network could provide a huge number of new outlets for the new, U.S.-built Mercedes-Benz M-Class luxury sport-utility.
Mercedes also is looking at developing a minivan, and Daimler’s Oregon-based Freightliner heavy truck unit is designing a pickup truck aimed at the U.S. and Latin American markets. Chrysler gives it a distribution chain it was lacking.
“If DaimlerChrysler came on strong in the truck segment, it could be a lethal combination,” said Bill Wilson, economist and auto specialist at Comerica Inc. in Detroit.
Meanwhile, marketing experts are speculating about the luster that Chrysler’s mass-market products might acquire from the Mercedes-Benz connection--a sheen that could offset the U.S. company’s iffy quality reputation and make it a tougher competitor for everyone in the U.S. market.
That could spell trouble not just for GM, Ford and the Japanese, but for European car makers wooing Americans with luxury lines that now compete with Mercedes-Benz. Volvo, the only company without a strong alliance to help prop it up, is most vulnerable, industry watchers say.
“They’re the odd man out, and this deal leaves them there,” said Magliano. “Their product line is vulnerable because they compete in the [near-luxury] arena that Mercedes is in and that Chrysler wants into.”
EUROPE
A London-based auto industry analyst recently called the battle to make and sell cars in Europe a “Darwinian struggle.” And the merger of Daimler-Benz and Chrysler makes some rivals’ chances for survival in the jungle even slimmer, industry experts said Thursday.
“In Europe, at least three auto makers--Fiat, Volvo and Peugeot--will be in a very bad position and will have to merge with somebody else,” said Laurent Imbert, European manager for Ofivalmo, a Paris fund managing company.
Although industry sales this year are on the upswing after five years in the doldrums, Europe’s automotive sector, which accounts for 27% of worldwide sales, remains plagued by chronic overcapacity, oversupply, high costs, intense competition, low prices and low profits.
To keep their heads above water, many of the Continent’s car makers, from France’s partially state-owned Renault to General Motors’ German subsidiary Opel, have cut costs and jobs, and closed plants.
And, it seems, the competition is only going to get more dog-eat-dog. On Dec. 31, 1999, a voluntary agreement between the European Union and Japan limiting Japanese-made car imports to 1.23 million vehicles in the accord’s final year expires, leaving the market in 15 countries of Western Europe wide open. In Europe itself, Japanese auto makers, who built local plants in the 1980s, especially in Britain, are busy with another round of construction.
Companies almost totally dependent on the European market, like Renault and its French competitor PSA Peugeot-Citroen, will eventually have to find a Japanese or American partner, some analysts predicted.
“Now the heat is on for managers of the big companies to analyze their strategies and see if they can go it alone,” said Klaus Juergen Melzner, an economist at Deutschebank in Frankfurt. On Wednesday, Fiat, Italy’s biggest car maker, announced plans to join with Renault to make buses, and it was rumored--again--to be in negotiations about a tie-in with Ford. Volvo of Sweden and Mitsubishi of Japan, which have a joint manufacturing venture in the Netherlands, were also reportedly talking about broadening their cooperation.
Adding to the impression of an industry in the throes of hectic change, Vickers PLC, the British defense conglomerate that owns Rolls-Royce Motor Cars, announced Thursday that it had decided to accept a $690-million cash offer from Volkswagen instead of an earlier bid from rival German car maker BMW.
JAPAN
The DaimlerChrysler news had particular resonance in Japan, where a bleak economic outlook has already caused jumpiness among auto makers and the industry is increasingly bifurcated between the “haves”--Toyota and Honda--and the “have-nots,” or everybody else.
Automotive stocks tumbled Thursday at the merger’s implications for tougher international competition. Nissan, where earnings are thought to have virtually disappeared for the just-finished fiscal year due to heavy losses in North America, saw its stock price hit a 25-year low.
That cheap price might seem to make Nissan a fat takeover target. Nissan’s stock, said Peter Boardman, an auto analyst at SBC Warburg in Tokyo, is now so cheap that Toyota “could buy Nissan, close it down, and probably make the money back in three to four years” by greater sales.
But while takeovers or mergers involving Japanese auto firms could make sense in purely economic terms, there are major practical and cultural obstacles. Key among them are so-called “cross-shareholdings,” by which related firms own shares in each other and resist outsider influence.
For example, Fuji Heavy Industries, maker of the Subaru, is effectively controlled by Nissan. Mitsubishi Motors Corp., Japan’s No. 3 auto maker in production, is 23.8% owned by Mitsubishi Heavy Industries Ltd., with at least another 13.5% owned by other firms in the Mitsubishi group.
But Nissan President Yoshikazu Hanawa acknowledged the pressures posed by ever-larger competitors. He said the Daimler-Chrysler merger marks a “realignment of forces into new alliances,” and predicted “ample possibility for Japanese auto manufacturers to also join hands with overseas counterparts to enter into business tie-ups and other alliances on a global level.”
U.S. auto firms already have strong links to Japanese firms. Ford, with 33.3% ownership of Mazda, exercises effective management control--but only because Sumitomo Bank, the other key shareholder, wants Ford to be in charge. Isuzu Motors, a manufacturer of trucks and commercial vehicles, is 37.4% owned by GM.
“GM already has management control” of Isuzu, Boardman said. “The president of Mazda is from Ford already. What more could they want?”
Holley reported from Tokyo, Dahlburg from Rome and O’Dell from Los Angeles. Times bureau assistants Sarah White in Paris, Petra Falkenberg in Berlin, Janet Stobart in London and Etsuko Kawase in Tokyo contributed to this story.
* ASSESSING THE DEAL: The two companies spell out the benefits of merging. D1
