Automotive mergers and acquisitions act as a means of increasing market share and improving reach.
Other related reasons include attaining economies of scale and augmenting product ranges. The global automotive industry is, however, unlikely to witness the kind of mega automotive mergers seen in the drug or media industries for two reasons. First of all, most mega deals were struck during the nineties and the turn of the millennium, reducing future scope for consolidation. Secondly, automotive manufacturers have already polarized into six major alliances - GM Alliance, Ford-Mazda, DCX Alliance, Toyota, VW Group and Renault-Nissan. Automotive mergers are turning into a strategic option for companies looking to accelerate growth. In addition to corporate-level alliances, functional collaborations are increasing all over the globe. In the recent past, several technology and platform sharing agreements have been forged, enabling companies to reduce product development times and costs.
Merger and acquisition trends in the automotive industry
The automotive industry witnessed a host of major deals during the mid to late 1990s and the turn of the Millennium. As a result, the last few years have seen deals amongst manufacturers dwindle. In fact, the value of deals fell from USD10 billion in 2002 to USD3.5 billion in 2003, see figure 42. Purchase full updated report here. Some countries in the emerging markets are growing at a spectacular rate. The India auto industry, for example, grew at a rate of 29 percent in 2003 while theChina auto industry grew at rate of 35 percent. These staggering growth rates are attracting global automotive majors to these markets in increasing numbers. Companies are resorting to acquisitions to gain a foothold in these markets, see table 44. Purchase full updated report here. First Automotive Works, General Motors and Nissan Motors are trying to consolidate their position in the Chinese market either through acquisition or equity stakes. Nissan Motor’s acquisition of a 50 percent stake in Dongfeng Motors for USD1.032 billion was the biggest deal in 2003. Competition and the global economic slowdown cut into the sales of Fiat and its debt rating was downgraded to just one rank above junk status. To reduce its debt, Fiat sold its stake in Ferrari and General Motors. Similarly, Daewoo Motors, which collapsed after the South Asian crises, was acquired by General Motors, see table 45. The main mergers and acquisitions that occurred during 2001, 2002, and 2003 are given in tables 46, 47 and 48 overleaf.
Impact analysis of automotive mergers and acquisitions Renault-Nissan automotive merger
This alliance was struck in 1999 and Renault acquired 36.8 percent equity stake in Nissan, 22.5 percent stake in Nissan Diesel and 100 percent in Nissan’s European Finance subsidiaries amounting to USD5.4 billion. Renault and Nissan came together to improve their respective competitiveness. The alliance is based on the principle that each company would retain its own identity while sharing resources. Renault supports Nissan in Europe and South America, while Nissan is firmly entrenched in North America and Asia. Responsibilities are shared for Africa and Middle East. Through this relationship, the companies intended to maximize synergies through their complementary strengths in product line-up, procurement, R&D, marketing, and personnel training, which would result in cost reductions, greater global market penetration and other benefits through cooperation. As a member of this strategic alliance, Renault would have access to up-to-the-minute technology, a worldwide network and advanced managerial expertise. The impact of this alliance has been beneficial. For example, Return of Equity (ROE) for Renault in 2002 and 2003, see figure 43, is attributed to the sharp increase in earnings of Nissan. The Nissan Revival Plan, which was started by the group in 1999 was focused on profit and international reach has resulted in increased net income and therefore an increase in ROE.
who revived Renault. whose US sales were flat.97 percent. gained access to overseas markets. In 2004. the combined entity expects the world economy to grow by 3 percent in 2004 and 2005. Chrysler’s top managers retired.In addition. quick and lean did not seep into the merged entity. Renault and Nissan provide complementary market support to maximize global efficiency in marketing and sales. before recovering moderately in 2002 and then again slipping into the red in 2003. the alliance continues to grow in the three major markets of the US. which could be leveraged by Chrysler. Chrysler’s cost reduction programs are expected to result in major savings. It also expects demand to pick up marginally in the developed markets. Looking to the future. primarily due to the appreciation of euro against dollar. see figure 47.3 percent and achieved cost savings in design and engineering. substantial cost savings have been achieved through a common purchasing strategy and by setting up a common supplier base. revenues of Chrysler Group segment decreased.9 percent in 2003.
. Purchase full report here. see figure 45.2 percent in 1996 to 13. Common platforms have been developed to reduce time for new product introduction. The fate of these new models is critical to the future of the merged entity. Chrysler will introduce as many as ten new vehicles . The market share of the combined entity has been falling. and this fall is attributed to merger problems and stagnant sales at Daimler. Chrysler's product pipeline did not have enough products to offset intensifying pressure from competition in the bread-and-butter segments like minivans and sport utility vehicles. see figure 44. Carlos Ghosn. A reduction of €866 million in debt in 2001 is partly attributed to sale of the group’s equity interests. Operating profits turned negative in 2001.a clean break from the past where it struggled to keep pace with the market. Chrysler has improved its productivity by 8.
The impact of this merger has been disappointing. The merger hoped to achieve a number of synergies:
The merger combined German expertise in luxury cars with agile US management and mass-market expertise. All these efforts have led to a decrease in working capital requirements and therefore. Worldwide market share for 2003 is 7. The merger with Chrysler gave Daimler-Benz direct access to the US mass market while Chrysler’s. As a result of such market focus. an increase in cash flows which allowed the group to substantially decrease its outstanding debt. Cooperation is being stepped up in the development.2 percent in 2003. In 2003. which had higher developmental costs. Chrysler had creative styling and low development costs. So the flair for doing things cheap. making DaimlerChrysler an auto giant that could face brutal competition from Japanese. thus improving cash flows. The transfer of chief operating officer. The aging model line up contributed to the fall. The combined entity aimed at attaining economics of scale that would reduce costs. higher sales incentives and lower unit sales. Renault hopes to pursue its international development and will be looking to grow volumes outside Western Europe. For the future. cheap and lean. quit or in several cases were pushed out as a result of the merger.
Daimler Benz Chrysler automotive merger
This merger was struck in 1998 creating a combined value of USD130 billion. This expertise could be transferred to Daimler. Chrysler’s market share in the US declined from 16. On the other hand. see figure 46. Europe and Japan while making inroads into other markets as well. German and US automakers. In addition. The alliance has been able to increase its global market share up to 8. to Nissan is one of the factors that made this alliance successful. It expects to benefit from cooperative ventures within the alliance. Renault expects the automobile market in 2004 to edge upwards in Europe and increase slightly in other countries where it has a presence. It had an entrepreneurial culture and flair for doing things quick. Daimler had a global distribution network second to none. use and sharing of common power train components (engines and gearboxes).