Blog: Dave LeggettBuddy can you paradigm?

Dave Leggett | 16 December 2004

It was fashionable not so many years ago to talk about the global auto industry's future in terms of consolidation to six mega vehicle makers. That hasn't happened yet and there is no obvious sign that it will. I was just on the phone with Jesse Crosse and we were musing on this in the context of an article he'll be doing for just-auto on BMW and PSA's new engine collaboration. But just think for a moment about all the tie-ups these days. Powertrain is one area that has been ripe for cross-supply, joint development, but there is also plenty of collaboration on vehicle development and production too. It's a business model that has worked for some small makers who were supposed to be subsumed into these mega groups. PSA is a good example of a company deemed to small to survive on its own, but it has managed to stick around through smart and selective collaborations with other firms.

But everyone is at it to varying degress and I guess, at some level, it keeps vehicle makers in business and has helped the industry to, largely, retain its shape rather than be radically reconfigured on an oligopolistic (love that word) model. The auto industry is subject to big scale economies, so it is quite amazing that industrial concentration has slowed over the last five years I think. Big is perhaps not always better.

And it is good that there is still so much diversity in this industry - even in the volume cars area. If the industry was on a one-way stampede to greater concentration, the implied higher efficiency could well mean lower vehicle prices (or bigger profits - might be a better outcome for shareholders in the long-run...but as John Maynard Keynes put it, succinctly: in the long-run, we are all dead), although it would also almost certainly mean fewer jobs and less choice for the consumer.

BMW/PSA engines


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