Automotive sector consolidating: will it work?
Pro 1: on the threshold of enormous investments
Stefan Bratzel, director of the German research institute Center of Automotive Management (CAM), sees some of the significant trends in the industry as catalysts for consolidation. “Technological development regarding autonomous driving, electrification, and connected cars demand huge investments. Even the big players might struggle.”
For the rise of the electric car, the automotive industry has put aside 300 billion euros. VW alone will spend 50 billion to develop electric vehicles, secure battery commodities, and build production plants. Daimler’s Ola Källenius says the company will work together with its rivals to face the challenges and improve margins.
Pro 2: sales are slowing down
ING automotive industry economist, Max Erich, believes we are on the eve of a consolidation wave. He sees dwindling sales as one of the essential motives. “It is most painfully visible in China,” he says. “Growth there has given carmakers the opportunity to up their production. That factor has now stopped.”
Pro 3: new competitors
To complicate matters, new players have emerged: Tesla, Nio, Byton, and a bunch of other Chinese manufacturers. “A new mobility universe is dawning,” says Bratzel. “This includes digital players like Uber, Google, and Apple. A real paradigm shift in the industry.”
Erich agrees. Carmakers are faced with matters new to them. They need to buy raw materials for batteries, develop software for sharing platforms, and autonomous driving. “It is not their strong point, but it should be in the future.”
When buying raw materials, scale matters, according to Erich. And autonomous driving and mobility platforms are all about cooperation. And both areas demand swiftness. “It’s a real race. Whoever can get to the market first, will profit.” According to the economist, carmakers need to work together. A necessity that is shown by the number of new alliances and possible mergers.
In the new universe, Bratzel also sees cooperations between parties that never crossed paths before. Google’s autonomous driving daughter, Waymo, collaborating with FCA, Volvo and soon also Renault-Nissan, for example. Or former enemies that become friends call it co-opetition or frenemies.
The late Sergio Marchionne, the former FCA CEO, was one of the visionaries in the consolidation game. He thought a car company should make 10 million cars a year to survive. “Nowadays, it is no longer the ‘survival of the fattest,’ says Bratzel. Companies need to work together intelligently to bring together technologies. The scale is still significant, but it is not as high as Marchionne’s prediction. “A minimum of four to five million cars a year is sufficient.”
Pro 4: Economy of scale
ING economist Erich, on the other hand, sees a future for mega cooperations with a yearly production of more than 10 million cars. “In the old car world, this wasn’t necessary. BMW and Daimler made healthy profits with only 2 to 2,5 million cars because they could stand out with image, design and their engines.”
The latter is no longer valid with the rise of electric engines. And shared mobility has made cars more of a commodity, a tool for which price is the main differentiator. “In that reality, numbers are important. The economy of scale.” The consequence: more alliances and fusions.
For consumers, this is good news. Prices will fall, and the choice will grow. Erich believes that in the short term, there will be more available brands. “The complex technology of internal combustion engines used to be a hurdle to build cars, but more companies will be able to build an electric car.” Just look at vacuum cleaner producer Dyson, that will launch a car within the next couple of years.
Why not 1: political opposition
Not everyone is a winner. Blue collar workers in the automotive industry face a grim future. Electric cars will lower employment because of its less complicated nature. According to a study by CAM, 15 to 20% of the jobs in the German automotive industry will evaporate if half the cars are electric in 2030.
Bratzel doesn’t think this will help. Battery cell production is highly automated so that jobs will disappear. But new posts will surface in other sectors. But this might bring a new problem: “You can’t just turn a plant laborer into a software developer. They might find a job in the service industry, but wages are lower there. Germany has a problem here.”
Why not 2: Cultural differences
While the list of cooperations in the automotive world is long, the list of failures is at least as impressive. Think of Ford and Volvo, GM and Saab, GM and Opel… or the biggest of all: Daimer and Chrysler. The big reason for failure is the difference in culture.
Take Nissan and Renault. At Nissan, the engineering spirit reigns, with a focus on dependability and build quality. Renault, on the other hand, is more design-driven, lead by Dutchman Laurens van den Acker in that department. Meanwhile, the Nissan directors feel overshadowed by the Renault top.
Other manufacturers also know their threats. VW is partly government-owned, so employment plays a significant role. And then there are family ties, like Porsche and Piëch at VW, the Ford family at Ford and the Agnellis at Fiat. Their influence often makes a fluid integration with other companies difficult.
Renault-Nissan, part two
“The idea that Renault and Nissan can swiftly merge and shortly after integrating FCA, seems overambitious,” says research institute Bernstein’s Max Warburton. “The idea ignores the national sensitivities, human motivations and a long history of failed fusions.”
A battle for power between Nissan and Renault is ongoing, partly caused by the Japanese refusal to talk about fusion. New Renault executive, Jean-Dominique Senard, sees Nissan director Hiroto Saikawa as an obstacle for his plans. According to press agency Reuters, Senard thinks it’s time to turn the page on the Saikawa era.
Niet mét, maar ook niet zonder elkaar