M&A: Neither a Buyer nor a Seller Be

Andrew Dederer
by Andrew Dederer

The history of the domestic automobile industry is a history of mergers and acquisitions. When times are good, the big fish eat the small fish. When times are tough, the big fish go to school. Witness Ford’s SUV-financed spending spree (Jaguar, Land Rover, Aston and Mazda) and the Daimler/Chrysler and Renault/Nissan mergers. At best, the long-term track record for acquisitions has been spotty, and alliances are equally likely to end in tears. So why do automakers persist?

Acquisitions possess a seductive logic: the “no fear” factors. Factor one: taxes. When a big automaker is doing well they have piles of money lying around. Buying up the competition keeps the taxable profit lower. Factor two: the art of the deal. Many auto industry executives hail from the world of finance. (GM CEO Rick Wagoner is a Harvard MBA.) Pulling off a big acquisition or orchestrating a huge merger is their “project car.” Factor three: capacity. Buying someone else’s production– and, hopefully, customer base– is cheaper and more efficient than building your own from scratch. Yes but…

Troubled automakers are almost always not what they seem. BMW bought Rover thinking it was securing an outlet to the UK’s mid-market. Unfortunately, by the time the Bavarians assumed control, Rover had lost most of its capacity and moved up-market to try to stay afloat. Instead of gaining entry into the middle of the market, the Germans bought the original “English Patient.” GM bought Saab in 1990 to grow a global luxury brand. After spending $1.5b and pouring a couple more billion down a Swedish sinkhole, The General discovered the brand’s glass ceiling: a limited appeal to a limited market willing to pay a limited price.

And speaking of cross-cultural coyote dates, voracious multinationals seem to forget that acquisitions come with their own traditions (i.e. entrenched bureaucracy and petty fiefdoms) and factories (usually old and in the wrong place). Isuzu, Suzuki or Mitsubishi are gold diggers on the prowl: top-heavy companies offering corporate suitors little more than engineering skills and expensive Japanese factories located in a mature market. For these reasons and more, most acquisitions fail miserably and hang around interminably– or at least until the execs responsible leave the company.

Mergers don’t fare much better. Chrysler accounts for the US auto industry’s two most recent mergers (absorbing AMC and being absorbed by Daimler). Fortunately, in both cases, one company was clearly stronger than the other, avoiding many of the problems inherent in any attempt to combine two corporate cultures. Even so, the first merger helped drag the company into bankruptcy, while the second only threatens to do the same.

History tells us Chrysler’s flirtation with oblivion is no exception. When Austin and Morris merged in 1952 to form BMC, the merged corporations maintained separate dealer networks, factories and management identities. As things went downhill, more companies were added to the mix. When Rover finally rolled over and died, it took with it the remains of over a half-dozen carmakers, all united by failure. The modern equivalent could yet be Hyundai merging with Kia: two rival companies with nearly identical product lines and deep-rooted management cultures.

Brand overlap is yet another merger-related nightmare. All car manufacturers’ line-ups span a number of price points and sizes. Adding in a former competitor necessitates realignment and pruning which, again, creates tremendous internal friction. And that’s on top of the fact that the whole point of buying a new brand is to grow sales, and those sales have to come from somewhere, and that somewhere is the industry equivalent of the horror movie's “he’s in the house!” Not to put too fine a point on it, the end result is often a major clusteryouknowwhat.

For example, while Ford has had success with keeping Mazda healthy (if static) and growing Volvo, you could easily argue that this progress has come at the cost of losing sales from (or simply neglecting) Mercury and Lincoln. Meantime Jaguar tried and failed to go down-market (more trouble for Lincoln). GM has had it even worse with Saab, especially since they started moving Caddy into the “sporty” side of luxury.

Common sense says it’s always best to stay focused, be your own man, hunker down and do a few things well– rather than gobble up a competitor and squander your resources on ill-advised brand extensions. Unfortunately, the auto industry tends to attracts egomaniacal leaders who see danger as an opportunity, rather than danger. When they're flush with cash, Empire building sings its siren song. As Ford eyes-up Renault, and other automakers eye Ford’s cast-offs, a word of unsolicited advise: look after your own house before coveting thy neighbor's.

Andrew Dederer
Andrew Dederer

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  • Sykerocker Sykerocker on Sep 14, 2006

    Back before the 70's, the GM model worked because of an iron line drawn between each marque. For example, at my father's dealership a (say) 59 Impala (top of the line) hardtop sold for about $3300.00. If you went to the Pontiac dealership, that same amount of money bough you a Catalina 9bottom of the line) hardtop, which had an interior equal to a Chevy BelAir (one model down from the Impala). Therefore you bought a more prestigeous nameplate, but got a bit less car for the same money. This system started to go wrong in 1961 when Pontiac, Oldsmobile and Buick started demanding their own version of the Ford Falcon (1960's big seller). So Pontiac got half a conventional car/half a Corvair, the other marques got small conventional cars. This situation was exaserbated (sp?) by Chevy getting the Caprice in 1965, putting it squarely in Pontiac territory. By the way, this supposedly happened because of an internal memo that division heads had to drive the marque they managed - no automatic Cadillac's anymore - and the Chevy brass wanted something more in line with their supposed stature. By the 70's marque identity was forever gone except in a negative fashion (Oldsmobile's are for senior citizens only, etc.). Syke Deranged Few M/C

  • Nino Nino on Sep 16, 2006

    ---The reason Iacocca wanted AMC was Jeep, not the AMC passenger cars. The unibody ‘84 Cherokee singlehandedly put the SUV on American families’ shopping lists. --- Don't forget the the brand spanking new manufacturing plant that Renault built in Bramlea, Ontario. What Chrysler paid for the whole of AMC (including the "Jeep" name) cost less than half what Renault paid to build the plant a few years before.

  • JK I grew up with Dodge trucks in the US, and now live in Turin, Italy, the home of Fiat. I don't think Italians view this as an Italian company either. There are constant news articles and protests about how stalantis is moving operations out of Italy. Jeep is strangely popular here though. I think last time I looked at stelantis's numbers, Jeep was the only thing saving them from big big problems.
  • Bd2 Oh yeah, funny how Trumpers (much less the Orange Con, himself) are perfectly willing to throw away the Constitution...
  • Bd2 Geeze, Anal sure likes to spread his drivelA huge problem was Fisher and his wife - who overspent when they were flush with cash and repeatedly did things ad hoc and didn't listen to their employees (who had more experience when it came to auto manufacturing, engineering, etc).
  • Tassos My Colleague Mike B bought one of these (the 300 SEL, same champagne color) new around June 1990. I thought he paid $50k originally but recently he told me it was $62k. At that time my Accord 1990 Coupe LX cost new, all included, $15k. So today the same car means $150k for the S class and $35k-40k for the Accord. So those %0 or 62k , these were NOT worthless, Idiot Joe Biden devalued dollars, so he paid AN ARM AND A LEG. And he babied the car, he really loved it, despite its very weak I6 engine with a mere 177 HP and 188 LBFT, and kept it forever. By the time he asked me to drive it (to take him to the dealer because his worthless POS Buick Rainier "SUV" needed expensive repairs (yes, it was a cheap Buick but he had to shell out thousands), the car needed a lot of suspension work, it drove like an awful clunker. He ended up donating it after 30 years or so. THIS POS is no different, and much older. Its CHEAPSKATE owner should ALSO donate it to charity instead of trying to make a few measly bucks off its CARCASS. Pathetic!
  • RHD The re-paint looks like it was done with a four-inch paintbrush. As far as VWs go, it's a rebadged Seat... which is still kind of a VW, made in Mexico from a Complete Knock-Down kit. 28 years in Mexico being driven like a flogged mule while wearing that ridiculous rear spoiler is a tough life, but it has actually survived... It's unique (to us), weird, funky (very funky), and certainly not worth over five grand plus the headaches of trying to get it across the border and registered at the local DMV.