Welcome to another round in the consolidation game.
The day the global auto industry descended on the Geneva International Motor Show, Detroit’s General Motors Co. said it would sell its Opel and Vauxhall brands to the France’s Groupe PSA SA. The result: a new No. 2 automaker in Europe.
Into that widely telegraphed morass stepped Sergio Marchionne, the Fiat Chrysler Automobiles NV CEO. His indefatigable search for a rescue, er, partner is exceeded only by his candor to actually say so — and name names (that is, Volkswagen AG, or GM, or whoever would have Italian-American agglomeration) in the process.
“I have no doubt that at the relevant time VW may show up to have a chat,” Marchionne said in Geneva, according to Bloomberg News. He told CNBC he “never” closes “any doors. ... I may shamelessly try knocking on the GM door again, or any door, if I thought it was a good thing to do for the business. Without even blinking, I could” because his preferred partner is “still GM.”
Doesn’t matter that VW again says “nein, danke,” whatever its on-again, off-again lust for FCA’s Alfa Romeo. Doesn’t matter that GM repeats its “not interested” brush-off, arguably with more intent now that it’s bagging the traditional auto business in Europe.
There you have it. Despite record auto sales and fat profits in the United States; despite a new, far more business-friendly administration in the White House; despite the prospect of Team Trump easing tough federal fuel-economy targets, the global auto industry clearly is moving into another round of consolidation.
The business is getting tougher, despite the profits generated in the United States or growth markets in Asia. Major governments, starting with the technocrats in China and the nannies at the European Union, are setting tough environmental and vehicle electrification targets driving investment decisions from Detroit and Tokyo to Stuttgart and Wolfsburg.
Capital demands are increasing, mostly because the traditional business now is competing with a new sector the industry didn’t seriously contemplate just a few short years ago. And that sector is populated by a whole new spectrum of competitors with names like Apple and Google, whose overstuffed wallets are matched by their knack for innovation and risk-taking.
“You’re going to see more and more players trying to gain in terms of scale,” Renault-Nissan CEO Carlos Ghosn told Bloomberg in Geneva. “It’s logical because of all the investments we need to face.”
Namely, dramatically increasing the fuel-efficiency and emissions performance of traditional cars, trucks and SUVs. Second, spending billions to develop alternative powertrains, including all-electric vehicles, whatever the comparatively tepid consumer demand.
And, third, making smart bets on an emerging mobility space estimated to represent a $10 trillion market, roughly three times the size of the global auto industry today. Everyone is not financially equipped to play, starting with Marchionne’s FCA and Mitsubishi Motors Corp., now part of the Ghosn-led Renault-Nissan alliance.
Who’s dealing? The Americans, for one. Their leaders are demonstrating next-to-zero interest in preserving the massive size and cross-town rivalry that raised four generations of auto-making families. No, the c-suites of today are far more interested in reality — returns on investment, growing share prices, managing scale and fattening the bottom line — than their forebears probably would recognize.
GM’s getting out of the car business in Europe because the rising investment requirements and lower profit margins are not so compelling. FCA is abandoning the small-car market, for now, and ending U.S. production of cars. Ford Motor Co. also is exiting compact car production in the States because there are more profitable ways to use its union-represented plants.
Homers express some trouble with this, evidently forgetting how Detroit’s arrogance, competitiveness and obsession with size changed much more slowly than the real world. The result: ignominious bankruptcy, pitiless restructuring and waves of layoffs and plant closings.
Pine for those good ol’ days? No, thanks. The American industrial machine that marked post-war Detroit, that made this corner of Michigan a national leader in per-capita income, will never be revived as it was because the conditions that made it possible no longer exist.
The economies of vanquished enemies in Germany and Japan were long ago rebuilt, in large measure with U.S. help. China now is the largest auto market in the world, bypassing the United States, and decisions by its transportation bureaucrats are reshaping the industry’s priorities.
The new world order in the global business is changing, regularly. Time to drive it — or it will drive you.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.