In 2015, Sergio Marchionne publicly made a case for mergers among automotive manufacturers. The need for intensive amounts of capital for research and development was one of the key factors he cited for support. Since 2015, the importance of research and development has remained, if not grown, as all vehicle manufacturers are looking towards the eventual electrification of virtually all their fleets. Estimates for the cost of research, development and implementation of electrification have risen fourfold over the last five years to over 300 billion dollars.
Recent on-again and off-again talks between Renault and Fiat Chrysler have reignited the discussion of the need for mergers of vehicle manufacturers. While it is yet to be seen whether any merger between Renault and Fiat Chrysler will be negotiated (which would of course also involve Nissan and Mitsubishi), it is clear that the international automotive industry is in a state of consolidation. It is worth noting that automotive manufacturers are not the only players in the industry considering or discussing merger opportunities, but their suppliers are as well.
However, nothing in the discussions between Renault and Fiat Chrysler should surprise anyone who follows the industry. Since 1998, the list of mergers (both successful and failed) is fairly long:
|1999||Ford/Volvo Cars||$6.5 billion|
|2009||Geely Volvo||$1.8 billion|
|2017||PSA/Opal and Vauxhall||$2.2 billion|
In addition to the above mergers or alliances, other automotive manufacturers are also working in global alliances on joint products. The list of joint ventures includes Volkswagen and Ford, as well as Toyota and Suzuki. Multiple industry observers are of the mind that there will continue to be mergers, joint ventures and alliances throughout the industry. These consolidations are driven by a number of factors, the principal of which continues to be the need for cost-sharing concerning expenses related to the electrification of vehicles. For instance, Volkswagen expects to spend $50 billion on the transition to electric vehicles while Daimler, which is a quarter of Volkswagen’s size, has indicated it will spend over $20 billion towards electrification.
The interesting question is whether consumers will see any tangible changes as a result of the consolidation of the automotive industry. Certainly, vehicle platforms and technology will be shared among merger partners. However, as has been demonstrated time and time again, local tastes and preferences will continue to have a huge effect on the delivery of vehicles to particular regions of the world. Additionally, there are always the potential for culture clashes within merged companies which can lead to their failure. Finally, many manufacturers are substantially owned by nation states or are significantly supported by national governments. This ownership will, of course, lead to impediments to mergers, be they in the form of guarantees requested for job security or other demands. There are some reports that the interference of the French government in the Renault/Fiat Chrysler discussions are what caused them to break off previously.
With merger activity continuing and new tech companies enter the vehicle world, it will be interesting to watch the industry and see what of the existing automotive manufacturers survive and thrive over the next five to ten years. Of course, the bigger interest will be what vehicles we are driving.