By on December 8, 2008

Fiat boss Sergio Marchionne has been schmoozing with Automotive News Europe [sub]. “By the time we finish with this in the next 24 months, as far as mass-producers are concerned, we’re going to end up with one American house, one German of size; one French-Japanese, maybe with an extension in the U.S.; one in Japan; one in China and one other potential European player,” Sergio predicts. And now, the WQOTD: “Companies can only survive if they produce at least 5.5 million cars a year.” So, someone special, who will it be? Someone special like… “Toyota, General Motors, Volkswagen, Ford Motor and Renault-Nissan.” Note: we could have gone another way on this one. In the same article, the thoughts of Jürgen Pieper, analyst at Metzler Bank in Germany, gets major play. Herr Pieper opines “Size in the current situation is what matters.” Small and nimble gets subsumed by big and… stupid? Stimt. “Daimler has been scarred by its experience with Chrysler, BMW bought Rover but sold it again after high investments failed to pay off. Analysts say both episodes showed that synergies between premium and volume carmakers are elusive.” “Elusive” as in non-existent?

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20 Comments on “Quote of the Day: Last Domestic Standing Edition...”


  • avatar
    Paul Niedermeyer

    There will be at least two Germans (VW and possibly a BMW/Daimler tie-up). And did Marchionne not have his morning espresso? What about Hyundai/Kia?

  • avatar
    Jason

    Because Honda has done so badly all this time.

  • avatar
    Nicholas Weaver

    I think he’s wrong. You don’t need to be BIG, you need to be AGILE. Something Fiat hasn’t managed to be.

    Thus Honda will survive: they are an agile company, with strong R&D, a strong focus, and aren’t just a car company (they are a 4-stroke piston engine company). And they are too big to be an easily digested buyout target, too.

    Likewise, Toyota’s biggest strength isn’t its size, but its agility and its refusal to grow by acquisition. When has a car company merger in the past 30 years worked out well?Aquisitions in particular cripple agility.

    As for the Koreans, Hyundai/Kia will survive, they are reasonably agile and the South Korean government won’t let them fail anyway.

    This is also why I’d give Ford better odds that GM: Ford is somewhat more agile. Look at the `09 F150 launch. Dodge went with “hype the yuppie truck”, when the yuppie truck is dead, hyped by the stupid “Ram Challenge” adds.

    Ford quickly shifted focus and have quietly launched a “this is the best Work Truck, period.”, where you can get a 1.5 ton rated pickup for $24k.

  • avatar
    Pch101

    Reading between the lines, I am guessing that he’s attempting to groom the Italian government to approve the sale of Fiat to a non-Italian company, or in the alternative, to justify the basis for getting some government cash for Fiat to buy other car companies.

    If they have the cash to do it, Fiat would actually be a good candidate for buying GM, which would be ironic in light of Wagoner’s bungled efforts to acquire them.

  • avatar
    no_slushbox

    In Two Years:

    US: Ford and GM will make it (they will either still be on government life support or have had their Chapter 11 re-births).

    Japan: Toyota and Honda will make it, and Suzuki is very strong in kei cars and in India. Mazda is a wild card.

    Germany: Daimler, BMW and VW all seem decently situated. VW might spin off (shut down) some excess brands depending what it costs to do that in Europe.

    Korea: Hyundai seems strong, they might ditch Kia.

    China: Nobody knows what is going to happen here.

    India: Tata seems strong.

    France: Nissan-Renault is probably ok, PSA might become a badge engineering distributor of others’ cars.

    Italy: I would think the Italian government would not let FIAT fail, but Marchionne seems to be announcing its death.

    Overall I see more small companies, not large companies, as production and engineering becomes more efficient. The Japanese, Koreans and Chinese will be the volume players.

    I don’t see a lot of short term consolidation unless it is government forced; buying more production capacity is not the answer to excess production capacity.

    Other possibility: The electromagnetic pulse waves from WW3 destroy all electronic production facilities and only Morgan survives.

  • avatar

    I don’t know. Many years ago, when I worked for VW, everybody was convinced that the world would end up with 4 manufacturers. Then the Chinese joined, and nobody really knows how many manufacturers China has, anywhere between 40 and 120.

    Read this, it has some pretty good points: http://search.japantimes.co.jp/cgi-bin/nb20081208ve.html

  • avatar
    Dr Lemming

    I don’t buy it. Once you reach a certain size it becomes very difficult — particularly over the long haul — to run an innovative, customer-sensitive operation.

    Let’s play this out further. Once the number of players shrinks to the level being proposed here, there is the very real likelihood that the industry will turn into a dysfunctional oligarchy. To get a picture of what I mean, recall the US auto industry in the late 50s, when there was very little diversity of approaches among the dominant Big Three.

    Marchionne’s perspective deserves rigorous debate.

  • avatar
    tom

    The car industry has known this all along. Everybody tried to grow so much that their company would be among the survivors, thus bringing doom upon themselves. We’re now in a situation where we have massive over-capacities because everybody wanted to grow, knowing that this would all end in tears.

    Anyway, I don’t think that we’ll be left 5-6 car makers.

    Toyota, Honda, Porsche(VW), BMW and Hyundai will definitely survive.
    I’m also pretty sure that Tata will still be there. A restructured Ford and GM would also make it, but this one far from being a done deal.
    Daimler has a good chance, their major problem is their vulnerability on the stock market without a majority share holder, so they could fall victim to a take over or they might team up with someone else in order to prevent it.
    Not sure about the state of the French carmakers, but I’m sure the French government won’t let its car industry die, so Renault will most likely live, while PSA might have to look for a partner (they’re already cooperating with Toyota on small vehicles – the Toyota Aygo, The Citroen C1 and the Peugeot 107 are essentially the same car – so maybe there will be more of this).
    And add to that the Chinese…I don’t really have a clue about their car industry, but I’d expect at least 2-3 Chinese companies entering the world market in the not too distant future.

    So I’d say that we’ll still have around 10 global players in 5 years.

    Instead of big mergers and take-overs, I rather see more cooperations and joint developments.

    GM and Ford prove the point that you can only manage so many brands. So cooperations seem to be the much more sensible route, because you can pick and choose the best for each project.

    Let’s look at Daimler for example. They’ve signed a deal with Aston Martin. Daimler will sell engines to AM, in return, AM designers will give the Maybach a face lift. If that works out, the next generation Maybach will be developed together with AM and will also serve as basis for the Lagonda brand. Plus AM want’s to produce a large convertible on the basis of the Mercedes CL.
    On the other end of the spectrum, Daimler is looking for a partner to build small cars, because Mercedes itself cannot produce the numbers needed to make them profitable.

    I think this is the way it’ll be done in the future. They’ll look for partners for each project and those partners can easily change after the project is finished. This way, the car companies remain much more flexible, while at the same thime they can benefit from economies of scale.

  • avatar
    Gottleib

    Interesting projection, but really does anyone really know what will happen with the current auto industry? When it comes to know the truth, well we will just have to wait to see what that is………personally I think the auto industry worldwide will evolve into something like the aircraft and appliance industries. There will be two or three large global companies with some smaller specialty manufactures, or it could evolve into something like the electronics industry with most of the production coming from the Asian companies. Only time will tell and every prediction made here is only as good as the next one.

  • avatar

    Pch101 is right.
    There are other things at work here. -Market pessimism, Monica Bellucci dumping him, etc.

  • avatar
    Robert Schwartz

    “Monica Bellucci dumping him,”

    That would ruin his day.

  • avatar
    dgduris

    I think tom has it. Lotus has lived that way for many years.

    Sergion Marchionne and Monica Belluci?! RF, what’s wrong with THAT picture?

    Ah! To be an Italian car magnate!

  • avatar
    windswords

    This is sooo 90’s MBA business school conventional wisdom. This was the big mantra in the 90’s – only 3 or 4 BIG competitors in any one industry. That’s what led to Dumbler deciding to “merge” (take over) Chrysler and to Robert Eaton to take the cowards way out (typical GM’er) and sell out to them instead of building on the foundation he had. This is just bullcrap. 2 years from now we will still have Honda, Porsche and other players who do not make 5 million cars a year.

  • avatar

    Everyone said the same thing about airlines after deregulation. It didn’t happen there. Turmoil & Turnover? Yeah. A handful left standing? Nope.

    –chuck

  • avatar
    KatiePuckrik

    I’m surprised Mr Marchionne hasn’t talked to Tata about tying up. They already have a close reltionship and Ratan Tata is on the board of FIAT. Couple the mass volume of FIAT with the luxury marques of Jaguar and Land Rover and you have the makings of an entity which has a reasonable market share in Europe and the blossoming Indian market up for grabs.

    Failing a complete tie up, then maybe FIAT and Tata should have a similar structure to Renault – Nissan. Jointly buying parts and raw materials to help bring costs down, sharing platforms and outsourcing production to other plants.

    I agree with everyone that Hyundai/Kia, Renault – Nissan, PSA, Toyota and Honda surviving, but I reckon that VW will survive, but not in the format that currently exists. When Porsche grab hold of it (and they will), I predict they’ll start to cut or sell some marques and models.

    Since Europe doesn’t have the same franchise laws, it’ll be easier to get rid of some brands. I can’t see Porsche wanting SEAT in the family of marques. Where exactly does it fit? SEAT’s biggest market is Spain and how exactly is that market doing?

    I can also see Bugatti being cut or sold. Apart from the Veyron (which VW lose money on) what else is there worth keeping? Anyway, Porsche have their own supercars which will do nicely (plus they make money on them).

    By the same logic either Bentley, Lamboghini or both will be sold. I say “sold” and not “cut” because they have marques worth having. There’s no need for VW to have any supercar brands when it’s going to be owned by one.

    Also, I can see the Audi TT being cut as well. It encroaches too much on the Boxster.

    Also, Ford will come back strong and GM will be back much a shadow of its former self. So much smaller will GM be, that a few private equity or bigger car companies companies may start looking at them…..

    P.S. Monica Bellucci is married to a French actor called “Vincent Casell”.

  • avatar
    Landcrusher

    There is certainly a lot of overly pessimistic crap coming out of these guys these days. Few folks get to the top of corporate ladders being contrarians, even when they are always right. You just have to realize that the corporate leaders usually aren’t there due to being experts at what they ought to be experts at.

    The culture in all these companies swings from, “can’t do wrong,” to, “the end is nigh,” faster than this post will display on this thread.

    Dr. Lemming makes a point, and I wonder if there isn’t a place for the old coach maker model to reappear. Have Ford press out panthers in 10k lots that smaller companies then make into various cars that people really want. Perhaps its not cost efficient, but it would lead to a lot more innovation and value. OTOH, there is bound to be some way government would kill it. Okay, now I am being overly pessimistic.

  • avatar
    tom

    @Katie:

    I don’t think I agree with you about VW. You’re right about Seat. It will get a couple more years, but if it doesn’t bring profits soon, Seat is gone. But the rest? Bentley will definitely stay, it doesn’t overlap with any of the other brands and it’s a nice way of selling otherwise unsellable Phaetons for a much higher price.
    Lamborghini might go away, but I don’t think so. It will probably depend on how this economic crisis thingy works out. But if it gets better by 2010, Lambo will stay. While Lambo and Porsche seem to overlap, I doubt that you’ll actually find many cross-shoppers out there. The two marques are just too different.
    Finally, Bugatti will remain with VW as long as Ferdinand Piech is alive, he’ll make sure of that, it’s his baby after all.

  • avatar
    brianmack

    “So, someone special, who will it be?

    Robert, have your kids been subjecting you to Higglytown Heroes?

  • avatar
    Dimwit

    As it’s been pointed out, the only way that size matters is in performance. Sheer size will never save anyone.

    Going down the list of companies and marques it’s obvious that Brand is all. Trying to compete against the market you’d better have something besides cold steel on the ground. VW’s boutique brands have a following and are probably safe, even Bugatti has brand equity for VW. Watch the refresh though. Should they screwup the Veyron II, Bugatti is toast.

    Ford has a reasonable mix, as does Renault, BMW, Toyota, Mazda, Honda. GM needs time to get its act together. Diamler needs time to bring back MB to the engineering heydays of the 80’s. They also have to streamline. Is Smart viable? Can they make Maybach work and is it worth it? For PSA, Citroen has flavour but their other brands have a distinct me too scent.

    FIAT has Ferrari. Alfa is the typically Italian gorgeous/horrendous and FIAT itself is just Italian through and through. That’s not enough. Partnering will help. Why someone would want to get in bed with an Italian government looks to be a sign of desperation.

    Tata is all about the money. Cash flow that is. They have stormed onto the int’l market but with heavy debt as an anchor. Should the domestic market falter they will be in trouble.

    Suzuki is doing very well in niches. They will survive quite nicely. Nissan has Ghosn. He’s not going to be there forever and if the house isn’t in order by then, it’s going to have trouble.

    One joker in the deck… there are going to be a *lot* of unused assembly plants around the world once the dust settles. A 10 mill unit US market is a blip. It will go up in a matter of years. Will a boutique assembler come out of the wings? Pure mercenary manufacturing? Consider Chrysler without an assembly plant but getting product as needed and just in the quantities needed. Suddenly they’re not only viable but maybe stronger than a lot of the traditional fully integrated companies if they can design and market efficiently.

  • avatar
    Dimwit

    And another thing… (I’m feeling like Dutch Mandel)will all these shenanigans in front of all these governments be the final impetus to get a unified world standard for safety? Or will it take a Ford or GM to say to the Voice from on High that puts out another “standard”; “No.”

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