Auto mergers were once thought of as the best things since sliced bread. Massive operating capacity leverage, shared platforms to reduce cost and a reduction of R&D spend per vehicle. The word “synergy” gets bandied about more than Casanova whispers “I love you“on Valentines Day! Yet why is the auto industry littered with divorces from these romances?
Lets list them.
Daimler bought Chrysler in 1998. Divorced in 2007.
Daimler alliance with Mitsubishi Motors founded in 2000. Divorce in 2005.
Daimler alliance with Hyundai founded in 2000. Divorce in 2004.
Honda – Rover JV. Started 1980. Divorced 1994
BMW – Rover – Started 1994. Deceased 2000.
Nissan – Renault – Started 1999. Currently providing real headaches due to Carlos Ghosn saga. Nissan wants full independence
Ford forms Premier Automotive Group (PAG) comprising Land Rover, Aston Martin, Volvo, Lincoln and Jaguar. Set up in 1999.
Ford sells Aston Martin in 2007.
Ford sells Land Rover & Jaguar to Tata in 2008
Ford sells Volvo to Geely in 2010.
Fiat Chrysler (FCA) formed in 2014 – including Fiat, Abarth, Chrysler, Jeep, RAM, Dodge, Lancia, Maserati & Ferrari brands.
FCA spins Ferrari off in 2016.
This isn’t an exhaustive list but one can be guaranteed that more money has been lost in auto mergers in aggregate than made. Daimler paid $45bn for Chrysler. Almost all of the Mercedes profits plugged the losses of Chrysler. Mercedes quality suffered through cost cutting sending it down toward the bottom of surveys. Daimler’s shares lost over $80bn in market cap as this disaster unfolded.
FCA and Nissan/Renault have been amongst the more successful marriages but global markets have turned many a honeymoon period into separation with fights over custody.
Forming a merger at the top of a cycle seems fraught with risks. Global auto sales are slowing. Renault and Fiat bring a lot of overlap in product lines. Nissan is such an unclear part of the puzzle.
One can argue that synergies which will lower the costs of future production have merit. Investing in battery technology does make sense across multiple product lines.
The biggest problem for the auto industry is that should a slowdown hit mid-merger, which brand suffers the hits? Which marketing team gets culled? Which R&D projects get scuppered? Too many cooks spoil the broth is the end result. There is no way a merger can be locked down in a short timeframe unless one of the parties is facing bankruptcy and has no choice but to comply. That is why Nissan-Renault worked.
Renault-FCA would be better conceived after markets have imploded. Marriages built on tough times stand a far bigger chance of survival than those that are built when things are the rosiest. Shareholders will be the biggest losers if conceived now.