If Ford hooks up with a foreign automobile manufacturer, it would be the second major change recently in the automotive landscape. The first change came in May, when Daimler-Benz AG, the German industrial giant that makes Mercedes-Benz automobiles, announced an agreement to acquire Chrysler Corp. for more than $30 billion.
Is a wave of international consolidation in the automotive industry inevitable? What factors are driving consolidation? Ultimately, what would consolidation mean for consumers?
Director of consulting operations for J. D. Power & Associates
There will definitely be more consolidation. I'm sure companies are considering mergers now that we couldn't ever conceive of. Nobody ever expected Daimler and Chrysler to be joined two years ago.
As far as what's driving it, it largely reflects different factors such as the continued globalization of the automotive market. The ability of consolidation to cut both the distribution costs and manufacturing costs -- both of which will ultimately create cost savings to the consumer -- allows two seemingly diverse companies to capitalize on the strengths of one another.
If it's done right, there's very little danger for the companies merging. I'm willing to wager that only an extremely small percentage of the American populace knows that Jaguar is affiliated with Ford.
Potentially, Jaguar had a lot to lose by joining forces with a company like Ford, but since the merger, Jaguar has been able to produce not only higher-quality vehicles, but vehicles that extended their image as a niche luxury car maker.
In terms of selection, the mergers potentially reduce the number of platforms vehicles will be built on. When two companies merge, the tendency is to take one platform and let each company develop a car off that platform. Selection may or may not decrease, but the tendency would be for some decrease in selection.
Quality is likely to improve through mergers, especially for the company in the merger that may have production or quality problems.
Going back to Ford and Jaguar, some of Jaguar's improvements are directly linked to technologies obtained from Ford.
Auto analyst, GVA Research LLC
If you back up and look at the merger of Daimler and Chrysler, you had the combination of two brand names -- Mercedes on the Daimler side and Jeep on the Chrysler side -- that were probably the best known in their product categories. If you look at the demographic profile in America and to some extent in Europe, those categories -- sport utility vehicles and luxury cars -- are likely to see the highest growth over the next 10 years.
So when you combined a company like Daimler with Chrysler, you really formed a company that had critical mass. And that prompted other auto companies to look to see if they could achieve a similar goal.
If you look at Ford and Volvo merging -- with Ford, with their Jaguar brand, you have a fairly upper-end, luxury marque. And with Volvo you're getting more of an entry-level or family-type luxury car, so in that sense Volvo and Jaguar could complement one another just as Jeep and Mercedes Benz complement each other.
It's this whole issue of critical mass in what I would argue will be the biggest growth segment over the next 10 years.
On the lower end, certainly the problems in the Asian economy are prompting some combinations. You've got a combination of KIA and Hyundai, but there it's an issue of overcapacity.
It really has been a deflationary environment in this industry. The only place where manufacturers have really been able to get any kind of pricing power is coming out with new products or trying to go to the upper end of the price range.
I would argue that simply this deflationary environment will force consolidation. You've got 20-plus vehicle manufacturers now. There's a general belief in the industry that that number will be reduced by more than half within next 10 years.
James N. Kelleher
Auto analyst, Argus Research
The Daimler-Chrysler combination was nicely synergistic. Mercedes has got really a small presence in American cars, and Chrysler virtually had no exposure in Europe. So that geography was quite nice. And there was synergy of lines. Chrysler is very strong in the medium lines, and Daimler strong in the luxury lines.
I don't know if you're seeing other good kinds of synergies out there that this kind of combination brings. I don't know, for example, why Ford would want to buy Fiat. And similarly, I don't know how Ford would do with Volvo. Volvo is a strong franchise and brand, but, comparably, GM hasn't been able to do much with Saab. I wonder if Ford would have the marketing discipline to be willing to undercut say, its Taurus sales to promote Volvo wagon.
There could be some synergies there, but I just don't see heavy synergies. The sensible combination has already been made. And right now there's just tons of small-car capacity out there. Anybody that is buying a company and is getting it from small cars, I just don't see it adding to the bottom line.
Pub Date: 1/03/99