company takeovers are rarely successful. The case against them goes as far back as 1974, when France’s Peugeot acquired Citroen, eventually stamping out its quirky flair and originality. General Motors (GM) failed to nurture the Saab brand it bought in 1990, leaving it bereft of the innovation that was once its hallmark. And while Ford left Volvo to its own devices, it ended up shouldering huge losses. Unsurprisingly, GM and Ford have sold out of these ventures – with little to show for it.
That’s why Mercedes maker Daimler, French Renault and Japan’s Nissan will today announce a transcontinental tie-up that stops short of a full merger. The trio will take minority stakes of three-to-four per cent in one another, in a symbolic act that shows their commitment to the alliance. The European pair will collaborate on small car technology, while Daimler will make engines for Nissan (already 44 per cent owned by Renault).
The odds are stacked against the coalition, however. Europe’s car makers face one of the toughest years in a generation: Moody’s expects sales to fall by 15 per cent in 2010; PricewaterhouseCoopers estimates there are 6.5m units of excess capacity in the industry; and the scrappage scheme stimulant has run out.
America’s car industry is better positioned. It was sailing perilously close to failure even before the recession, but the radical overhaul of GM and a renegotiation of union agreements have given it a fighting chance. Ironically, because Europe’s car industry fared better in the slump, it will struggle more in the years ahead.
Partnerships that free up capital by spreading the cost of investment can work, but only if they also open up new lines of distribution. Volkswagen, already the biggest foreign player in China, has signed a deal with Suzuki that will give it access to a large dealer network in India, for example. But the Daimler/Renault/Nissan pact has no such advantage. An ill-defined alliance built on a series of pointless equity swaps, it will make little difference to their fight for survival.