Flint: Ils N’ont Rien Appris, Ni Rien Oublie

Related Articles:

Flint: Ford Plans No Home Runs by Jerry Flint (9/1/2003)
Have you seen the product plans? A bunch of singles, maybe some doubles.

I have just read the worst advice for automakers. It comes from the chief executive of the world’s largest automaker. Unfortunately, he and his earlier General Motors chief executives have been following this advice, and it has cost GM and its shareholders many many billions of dollars.

I was reading my Automotive News and this is what I saw in the September 15 issue:

Wagoner: European Consolidation Needed to Sustain Profits
Frankfurt—The European auto industry must consolidate because too many companies are splitting the European new-car market to achieve sustainable profitability, says General Motors Chairman Rick Wagoner.

“You cannot have six or seven manufacturers each with 8 to 10 percent of the market and make money,” Wagoner said in an interview at the Frankfurt auto show. ”I expect that will change.”
The story went on to say that the Europeans are going about their business in the wrong way. Instead of focusing on a limited number of platforms to achieve economies of scale and boost profits, they are adding platforms and getting more models per platform and even multiple powertrain families.

“We’re all spending more to do more models,” Wagoner said. All that development means the Euros won’t able to make good steady profits.

“There must be further consolidation,” he said.
Rick is a fine fellow and I’m not dumping on him. But he should really think this out.

Let’s see. Name three really successful auto companies. Toyota, Honda, BMW. One thing about these auto companies is that they don’t go around consolidating, buying, merging, or acquiring others as Rick suggests.

Now let’s look at some of those consolidators, like General Motors, which bought Saab, and a fifth of Fiat, control of Isuzu (since sold off a lot) and pieces of Daewoo, plus chunks of Suzuki and Subaru (forget about Lotus, which is long gone), to the tune of billions in losses. In the last quarter GM, the big consolidator, made its money off house mortgages.

Likewise, Ford bought Volvo, Jaguar, and control of Mazda and Land Rover. Again, all but Volvo have spent lots of time in the red, drained Ford money and talent — and if there’s been a reward, go find it. Ford stock is running about $11.

DaimlerChrysler stole Chrysler and bought control of Mitsubishi, and the losses are eating away the profits of Mercedes.

Better off alone

Frankly, anyone would have been much better to have bought the stock of Porsche, the absolute unconsolidator, than GM, Ford or DaimlerChrysler, the folks who believe in global acquistions.

As far as poor suffering Europe goes, every big automaker is in the black except GM, Ford and GM’s partner, Fiat.

Hint: Maybe the others know how to build a variety of popular cars without going broke. Now GM’s Opel, the heart of GM Europe, hired a chief executive from BMW, as I recall, rather than sending over anyone from Detroit. Good idea.

And GM, I hear, is putting out the word that won’t consolidate with Fiat come hell or high water and despite a contract that would call for just that consolidation if Fiat asked for it. Smart move on GM’s part. But then how can the GM CEO call for consolidation when he seems to have had enough?

Could it be a plot to ruin the competition by getting them to merge? No, I think people really believe that less competition is better.

Rick might ask his vice-chairman, Robert Lutz, about such mergers. I don’t want to get Bob in trouble but he has made the case more than once that such mergers, consolidations, joinings of auto companies, rarely work.

But many insist — not just Rick Wagoner — that in a few years, 2010 or 2020, there will be just five automakers or eight automakers, some small number.

My prediction is that there will be more automakers in the future than today. I assume that new companies will arise from China and Russia and India in the future. I assume that the world’s largest automaker hasn’t even been created yet. You want to say who will be the biggest automaker in 1000 years, in 3003?

Merging to death

Just two more things:

A few years ago Detroit automakers were telling their suppliers to merge, grow bigger, make more things. The carmakers were tired of dealing with so many companies. Let’s have a few big ones, they said. That advice was ruinous for the parts makers who followed it. They ran up big debts just when Detroit was chopping their prices.

Now there have been a few positive consolidations that seem to be working. Volkswagen bought Skoda in Czechoslovakia and SEAT in Spain. After many problems, particularly in Spain, they seem to be working. The pair make VW cars under their old names to sell in their turf.

And Renault took a controlling interest in a sick Nissan and really saved the Japanese company. But that was due to the genius of one man from Renault who took charge of Nissan and loosened enormous creative energy there.

On the whole, they haven’t worked. Look at the BMW acquisition of British Rover. A disaster. BMW paid people to take Rover back and now BMW is doing fine. There also are many who question VW’s consolidation of Bentley and Lamborghini. In fact, the brands or factories haven’t vanished. There are new factories and more money is being spent on the brands by VW than ever.

Consolidation is no magic bullet. That’s been proven.

Like I always say, “Ils n’ont rien appris, ni rien oublié.”

They have learned nothing, and forgotten nothing.

The Car Connection Daily Headlines
I agree to receive emails from the site. I can withdraw my consent at any time by unsubscribing.
Thank you! Please check your email for confirmation.