The world’s motor industry is changing. Fiat, fresh from acquiring a 20 percent stake in ailing US car giant Chrysler, is in talks to buy the European operations of the other sick American automaker, General Motors. If the deal goes ahead, and there is still a big “If” to it, the Italian manufacturer will acquire the German Opel and British Vauxhall brands and be catapulted into the world’s No. 2 automaker slot after Toyota.
But this is not really the big change that is coming. For many pundits, this marks the beginning of the end of the US-European-Japanese domination of vehicle manufacture and the rise of Chinese, Indian and perhaps also Malaysian car companies. The reason is that few people believe that the two Fiat deals can succeed. Despite an improved model range, Fiat has until now found itself too small to succeed. Renault was in a similar position until it did its link up with Nissan which, before the recession hit, was serving both companies well with almost 100 percent common sourcing of components and other widespread synergies in their supply chains.
The problem for Fiat on the Chrysler deal is that history is against it. German automaker Daimler bought a controlling stake in the US company but failed to make it work. It sold out at a massive loss to a private equity fund and in the deal that sees Fiat acquire a key 20 percent take in Chrysler, Daimler offloaded its remaining 18 percent of stock in the business. In 1980, in its first attempt to grow dramatically, Renault acquired a 46 percent stake in the then ailing AMC of the US in a link that proved disastrous. After big losses, the French company sold out seven years later, ironically to Chrysler. European car companies simply do not seem to be able to run their US counterparts successfully.
And now there are the two European brands of GM that Fiat wants to gobble up. On paper Opel and Vauxhall would give the Italian firm extra volume for when the recession picks up, at what is almost certain to be a fire-sale price. However, the two big questions are does Fiat have deep enough pockets and does it have sufficient management depth to be able to incorporate the two European marques at the very same that it is trying to turn around Chrysler? Few industry experts think so. This is not least because since 2000 GM and Fiat were in protracted talks to link. In the end the US automaker walked away, in large part because of Fiat’s hierarchical and inflexible management. It paid a massive $2 billion to unbundle the production links that had already been made.
Therefore as and when Fiat’s acquisition of Chrysler, Opel and Vauxhall goes sour, the Italian carmaker itself will come “into play” and the would-be buyers will be Asian. Nor indeed is it unthinkable that Chrysler and GM could have Chinese or Indian owners within the next few years. To coin a phrase: “Watch this parking space”.
World economy, still waiting
Wealthy countries — not just the United States — must take aggressive steps to stimulate world markets and trade, said New York Times in an editorial yesterday. Excerpts:
Last month’s meeting in London of the world’s top 20 economies was a diplomatic success but an economic muddle. President Obama’s understandable desire to restore diplomatic harmony won out over the urgent necessity for coordinated international stimulus.
Four weeks later and the cost of that fudge is clear: Global indicators are still sinking, and the huge pool of bad debts weighing down the world’s banks has not been adequately addressed. Protectionism is spreading.
A report this week showed the United States economy declined at a more than six percent annual rate for the second straight quarter. Equally abrupt declines seem likely in Germany, Europe’s largest economy. Sharper falls are anticipated in poorer developing countries.
Wealthy countries — not just the United States — must take aggressive steps to stimulate world markets and trade. Germany’s chancellor, Angela Merkel, is resisting, making it easier for the rest of Europe to resist.
We know that German voters are worried about inflation. But Merkel is feeding their fantasy that Germany is somehow insulated from the world’s woes. It isn’t. With more than 40 percent of the German economy based on exports, it cannot afford an accelerating decline in international trade and markets.
Stimulus isn’t all that’s needed. There must be stronger national and international regulation of financial markets, a politically delicate subject only gingerly dealt with in London last month. Governments need to be bolder about taking temporary public ownership of banks overwhelmed with bad debt, restoring their financial health by disposing of these crippling obligations then returning them to private ownership.
And while all 20 countries participating in the London summit pledged to avoid new protectionist measures, the World Bank’s president, Robert Zoellick, says that at least nine of them are considering or have already taken steps that would violate that pledge.
