The evolution of the international motor industry is nearing midnight. The weak have largely been winnowed out by of the scale of the capital required to stay in business -- and by the paucity of return on investment if they do. There has been no significant loss of nameplates, but consolidation and globalisation have concentrated the decision-making in a handful of mega-groups.
The six largest groups controlled 70 per cent of all vehicle sales worldwide last year. The remainder were shared between at least 40 other companies, big ones and small, international and regional.
At the heavyweight level, product quality is broadly similar, thanks to standards set a generation ago by the Japanese and subsequently adopted by their competitors. Groups like Toyota, Honda and Nissan remain the ultimate in efficiency, quality and reliability, but European, North American and South Korean groups are not far behind these days. Indeed, they improved to such an extent that Volkswagen executives display no embarrassment when they refer to the group's Skoda models as worthy rivals to Volvos. The idea would have been laughable a decade ago.
Former competitors now share key components and even production lines. Everything being more or less equal, then, the industry's battleground of the future will revolve around brands. However, recent history raises questions about whether the field marshals of the automotive wargame know how to get the best out of their divisions. They think they do, but plenty of evidence suggests they do not.
For a start, the irony is that Honda, Peugeot-Citroen, Porsche and Toyota - some of today's most successful car groups - steered clear of the merger and acquisition activity that obsessed their rivals in recent years. The other notable success story of the moment is BMW -- but only because it abandoned a previous brand expansion policy by walking away from Rover.
These groups are able to concentrate on expanding and improving what they already own and understand. Their staffs do what they do best, free from the threat of a sudden posting to a new discipline in an alien company in another country and culture. Their pattern of consistent, profitable internal growth is in contrast, for example, to DaimlerChrysler's Big Bang policy.
In the space of a few years, Daimler-Benz, a solid, high-achieving German engineering firm, embarked on a globalisation route that requires its people to learn the cultures -- and languages -- of two different countries and companies. And as if Chrysler in North America and Mitsubishi Motors in Japan are not enough, other DaimlerChrysler managers now have to mug up on their understanding of South Korea after their employer took a minority shareholding in Hyundai Motor.
The business performance of DaimlerChrysler since its creation is a matter of derision in the financial community. Its problems, and at Ford and Fiat, partly reflect a lack of understanding about the brands in their charge and what consumers expect of them. Juergen Schrempp, the architect of DaimlerChrysler, says a decade is required to prove the strategy is right -- though that was not how the Chrysler acquisition was sold to shareholders at the time.
A major merger clearly needs plenty of time to work properly. It has at the VW group, where financial returns over the past decade were never as impressive as its huge increase in sales. Under former chairman Ferdinand Piech, VW's four volume brands -- Audi, Seat, Skoda and VW -- were encouraged to compete with each other as much as with competitors. New boss Bernd Pischetsrieder -- schooled in the impeccable disciplines of BMW brand management -- has decided that does not make a lot of sense.
An earlier example illustrates why the VW concept would not work. GM once had very clearly defined roles for its North American brands, but then allowed Buicks, Oldsmobiles and Pontiacs to compete with each other as much as with Fords and Toyotas. GM then added another brand (Saturn) to confuse customers further. The result was that the corporation's market share was massacred over the past three decades. It was all down to inferior products and fuzzy branding.
Neither should it be forgotten that over the 12 years since GM took over its management, Saab returned marginal operating profits in only two years. Its vehicle sales went up and down, but they have still not achieved the level they did before GM became involved. By any standard, Saab does not look like a notable case of brand stewardship on the part of GM.
Despite demonstrating that it does not know what to do with its brands, though, GM has taken on Daewoo Motor. Now there is a possibility that GM will take over Fiat Auto at some time in the future. It may make strategic sense on paper in Detroit, but the reality is too awful to contemplate. This would amount to a serious case of brand overload.
For a start, Fiat Auto's own record of managing its marques is poor. Sales of Fiat brand cars once vied for top place in Europe, but are now in a distant sixth position -- and falling. The group has owned Lancia for the past 33 years, but the brand sold only 147,000 cars in Europe last year. As 85 per cent of them were to Italian buyers, Lancia is virtually unknown outside its home country. The Alfa Romeo record is better, but it was a long time before Fiat became serious. Bought in 1986, Alfa Romeo sold 205,000 cars in Europe last year, around 45 per cent of them in Italy.
Neither would an enlarged GM simply be a question of overlapping brands. Would GM shareholders want to finance a restructuring of Fiat Auto as well as Daewoo? In addition, it is doubtful whether the group has enough high-calibre personnel to run such complex, highly political companies as Daewoo and Fiat successfully. This issue raises a broad management dilemma: can a new owner rely on its acquisition's existing personnel to run the company, or does it have to ship in trusted talent of its own? The people at the company that was taken over understand its products, systems and traditions. They are responsible for what it is as a brand, which was a primary factor for the take-over. But they are also responsible for its loss of independence, which suggests they were doing things wrong. On the other hand, the parent group will only weaken another part of its organisation by transferring premium talent to the new subsidiary in order to solve problems there.
That happened a few years ago when GM made Gary Cowger chairman of Opel. Five minutes later, Cowger was transferred to Detroit to take charge of the group's labour relations. It was not the action of a firm over-burdened by top talent -- which was effectively confirmed when GM was subsequently forced to recruit an outsider, Carl-Peter Forster, to be Opel's chairman.
It is hard to escape the notion that mergers and acquisitions are sometimes nothing more than demonstrations of corporate virility. It is not the acquisition per se, but preventing the other guy from winning the prize. Coincidentally, a big money takeover will also appeal to the boss's vanity by guaranteeing a Business Week cover story. The hard work and cash commitment begins after the merger ballyhoo has died down. But the welfare of the new brand can get bogged down in conflicting financial, cultural and personnel requirements elsewhere in the group. Compromise and cost cutting set in, as they appear to have done at Jaguar.
Since buying Jaguar in 1987, Ford supported it brilliantly -- until recently. Ford may currently be mired in quality and financial problems in North America, but that does not explain why Jaguar is stranded without diesel engines at a time when over half of European buyers want them. That speaks volumes about the wisdom of Ford and Jaguar product planning decisions in the mid-1990s. The recent decision to cancel the F-type roadster suggests Ford has adopted a cheapskate attitude to Jaguar. For Jaguar to compete with Mercedes-Benz and BMW, it requires the same level of product investment -- or more in order for Jaguar to catch up. It is never going to happen.
At the moment, the exception to the rule appears to be Renault-Nissan. Officially an alliance, it is more like a Renault takeover. But both sides appear to be benefiting, though the alliance is too new to be sure about the longer term.
The more negative examples involving DaimlerChrysler, Ford, Fiat and GM raise doubts about whether takeovers are all they are cracked up at the time. They can quickly become financial liabilities to the new owner and serious drains on top management talent. The result is that brands, positioned far down the chain of command from the boardroom, are frequently not given enough money and manpower to get the job done.