Chart Of The Day: Is Consolidation Inevitable?
January 10th, 2015 1:33 PM Share
Conventional wisdom holds that consolidation among auto makers is inevitable. But this chart from IHS Automotive tells a different story.
As time has passed, the market share of the 10 largest auto makers has slipped. IHS projects that by the end of the decade, they will account for just 70 percent of sales. No one auto maker is poised to make any gains from 2012 to 2020. At best, certain OEMs like Volkswagen, Renault Nissan, Honda and Suzuki will remain flat. So, who is making up the other 30 percent?
( H/T Glenn Mercer, industry veteran, TTAC reader and former owner of a Zanardi NSX)
Published January 11th, 2015 9:00 AM
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Consolidation is 1 way, but i think there is another way too, that´s cooperation, JV for specific regions or specific model segments and so on. Big players have better options, Marchionne, Ghosn and other guys they all say the same thing, you need volume, 6-8millions to have global platforms and so on, they are just what 7 global automakers in this volume so others need to cooperate to be proffitable and minimize costs, after all look at various automakers, competitors and have JV plants all over the world, Toyota-BMW, Toyota-PSA, PSA-Mitsubishi, GM-Renault, Renault-Nissan with Daimler and so on, everybody is competing with everybody, trying to steal market share and than you check from other angle and you see they have JV plants producing the same car just with different badge, but 99% identical...
Who is making up the other 30%? Is this a serious question? The table, such as it is, misses Mazda, Subaru, Mitsubishi,, Volvo, JLR, Lada, let alone Mercedes and BMW, not to mention a plethora of Chinese makers, including the Wuling van which gets counted twice by everyone - sorry, bad joke. Nobody's going to take over Honda - they're too disorganized to suit the beancounters of a possible buyer. They never do the same thing twice in factory design. It's all improvisation. And too much rework at line end, according to the new book "Driving Honda", which itself is far worse than anything Honda has made. A lot of drivel, just a few insights.
Having worked in M&A for 3 decades, there was traditionally the school of thought that "bigger is better" in capital-intensive or marketing-dominated industries. A great many industries experienced the "Coke bottle effect" - the big got bigger, new niche entrants came in at the bottom, and the middle players got squeezed out. These latter didn't have the resources to compete with the "bigs", weren't nimble enough to compete with the tinies (and couldn't survive on niche markets), so they typically got swallowed by the bigs. Not always a happy result for the acquiror. Having said that, you always need to look at the overall size/complexity of the market, and the point at which economies of scale start to diminish/disappear The auto industry is very large on a global scale, but also very local - due to both regulatory issues and market preferences. One also has to look at the difficulty of combining companies that have different corporate cultures. This is often overlooked, but critical to the success of a deal. So, a combination of Ford and GM wouldn't make the combined company more competitive - most likely, the reverse would happen. A combination of any of the top 5 or 6 with any of the next 5 or 6 is also likely to be value-destructive. When companies of a similar size are combined, the usual result is civil war between the 2 cultures, and significant value destruction. What is most likely to succeed is the combination of a large player with a much smaller player - but only if the large player is very disciplined about recognizing and nurturing the strategic attributes of the acquired business. Believe it or not, this rarely happens. The auto business, in my opinion, is large enough that most of the current top 10 or so can sustain themselves. Pch presents Suzuki as the major target opportunity, which may well be so. The car business, though, is part of a larger organization that is family-controlled, afaik. This often means that the family will watch it be destroyed in the market before they will sell. As always, time will tell.
I take it these are global projections since PSA and Suzuki are listed? I'll assume they are, as much as I agree a consolidation is inevitable you won't see one until one or more of the players gains a decisive upper hand in market share vs the others. Now if some sort of major geopolitical event occurs in a specific region where an automaker is strongest (so Hyundai in Korea, Suzuki in India etc), their position may weaken enough to allow for a corporate takeover by one of the stronger parties. "So, who is making up the other 30 percent" I suppose smaller niche brands which have either gone global but fail to make the list (Volvo) or are regional only brands in high population areas (Proton in Malaysia and Indonesia)