Automotive Industry Concentrates on Mergers to Face New Challenges

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CE Noticias Financieras English

March 13, 2019

Anyone who pays attention knows that a change is coming for carmakers worldwide, who must cope with new technologies, stricter emission standards and applications that have made car buyers simple passengers.

While the change in the industry so far has been abstract, the veil began to break away at the Geneva Motor Show. The conversations between executives were marked by collaboration and consolidation and not by the new models. In the markets, the consequences drag a growing number of victims.

Warnings about results, unfulfilled targets and falling stock prices in parts suppliers such as Schaeffler and ElringKlinger, pillars of the industry, show the depth of imminent change. If you add to that the news that the archrivals of the luxury segment BMW and Daimler will join in autonomous driving and Volkswagen AG will allow a startup to share the technology of electric cars that wants to make a global standard, the new contours of the industry are taking shape.

“We are entering a period in which chaos will make competition extremely selective,” PSA Group executive director Carlos Tavares said in Geneva. “This may change the way our companies operate and could also create opportunities for agreements over time,” he added.

Peugeot, Fiat

In Geneva, traditional showcase for cars with style and that extra luxury, you could see the usual in some parts. The Volkswagen Bugatti brand unveiled the most expensive car in history and Alfa Romeo showed a concept of a sport utility vehicle, but the elegant models were quickly overshadowed by the talks about a widespread industrial restructuring.

After Bloomberg News reported on March 4 that PSA, owner of Peugeot, Citroen and Opel, are seeking a merger or collaboration to add scale, Mike Manley, top executive of one of the possible targets on the list, Fiat Chrysler, gave a surprise response its transparency

“If there is an opportunity to partner, for an alliance, for a merger that can make us stronger, I will analyze it clearly,” Manley told the media.

Tavares also backed the idea by confirming that it is open to agreements. In addition to Fiat, the executive has talked with advisers of General Motors and the troubled brand Jaguar Land Rover of Tata Motors, according to people close to the subject.

Strange couple

BMW and Daimler, enemies for decades, spent in recent weeks more than 1,000 million euros ($1,100 million) to collaborate on mobility, and a few days later continued with an association on autonomous vehicles. Companies would be in the initial stages of exploring deeper ties, which could include developing vehicles together, something unthinkable a few years ago.

“Partnership is essential to survive the transformation of the industry,” admitted BMW development director Klaus Froehlich during a joint press conference with his Daimler counterpart, Ola Kallenius.

In Geneva, Renault and Nissan, whose alliance of two decades has been affected by accusations of financial irregularity against its ex-leader, Carlos Ghosn, has shown signs of unity and promised to continue despite the tension.

“The alliance already gives us the necessary scale to invest,” said Guillaume Boisseaum, general manager for Western Europe at Nissan.

The possibilities of VW

Volkswagen also opens up by sharing its new electric vehicle platform, dubbed MEB, with a car battery startup of Aachen, Germany. While e.Go Mobile is run by an entrepreneur-teacher who has already eclipsed Daimler and VW with a successful range of electric delivery vans, it is still a small company that a few years ago would have had little chance of attracting the attention of the world’s largest car manufacturer.

VW CEO Herbert Diess will also conduct a brand review while talking to Ford for a collaboration and try to drive organizational changes that will make the company more agile. He said recently that German automakers have a 50% chance to stay ahead in the current transformation race. For your providers, the odds are probably lower.

“Not everyone can afford to keep spending all this money, especially with the speed of this innovation,” Don Walker, executive director of the Austro-Canadian provider Magna International, said in an interview. “There will be more cooperation, either through joint ventures or acquisitions,” he added.

The entry Industria automotriz concentrates on mergers to face new challenges was first published in La Tercera.

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