Car Industry II

In the first part of the case study, I talked about the problem with two giant car manufacturers, General Motors and Ford. In this second part, I will continue to elaborate on the next two giant car manufacturers. I will also talk about two successful car companies.

In 1998, Daimler-Benz merged with Chrysler. This deal was the biggest consolidation deal at that time and was thought to be beneficial to both Daimler and Chrysler. However, turning over a tired brand like Chrysler proved to be an uphill task for Daimler which costs them a lot in German market when Mercedes lost its market share to BMW. Daimler found out that, to revive Chrysler, they have to provide the brand with new and better products. They also have to take a lot of time to reshape Chrysler to become a leaner and efficient organization and managed to turn losses into profits in 2005. The reason why this deal had taken in the first place was because Daimler-Benz cannot bear the high cost of producing electronic systems in luxury cars, such as Mercedes. Mercedes on the other hand is not a volume car producer; hence, Chrysler can help Mercedes to spread the costs of production over a bigger output.

In Europe, we have Volkswagen. Volkswagen has been using mergers and acquisitions as a way to expand the company within the market. And on the surface, it looks like they do not have much problem with its many brands. Audi and Bentley have been very successful with new models and increasing sales figure. Beyond the surface, however, its three brands namely Volkswagen, Skoda and SEAT are all competing for the same market with each other. Then there is the sports car brand, Lamborghini that has come out with a few good looking sports cars but failed to show some profits. Their American market, where they used to be very good at, is now losing its share to other companies, particularly Japanese and Korean car companies.

So far we have seen that most mergers and takeovers have been a flop for those companies. But, there are some successful stories like Renault-Nissan. After the state-owned Renault being privatised, Louis Schweitzer (CEO at the time, now Chairman) saw that Renault’s market capitalisation increases and at the same time Nissan’s is decreasing. Nissan, suffering from huge losses at the time, accept Schweitzer’s offer to buy 37% controlling stake in the company. To Schweitzer, the deal was not only to help Nissan, but also to help Renault to gain global scale. When Nissan’s debt was cut down by its profits, Schweitzer increased Renault’s stake in Nissan to 44%. Now, both companies are reaping benefits from the deal.

But, there is one car company that over the history of the car industry did not join in this ‘merger mania’. And this company is the most profitable car company in the world. With only 4 brands, they are set take over GM as the biggest carmaker and this car company is Toyota. For years and years, Toyota has been focusing on improving its own products. Other than buying Daihatsu for small car engineering, they have been putting a lot of efforts in increasing efficiency, lowering costs and introducing countless of variations into the market. When they started luxury car business, they went against the crowd by building Lexus from scratch, rather than just buying other firm’s famous and established brands. And Lexus is actually the best selling luxury car in America and slowly creeping into Europe.

As we can see it, the way to succeed in the global car industry has changed. Therefore, either the players in this industry ride along with the trend or get squeezed out of the industry. Ciao.

SOURCE: The Economist.

P.S. I’m wondering how Proton will survive in this highly competitive and saturated automotive industry. Proton is a state-owned car company from Malaysia.