Blog: Dave LeggettLet's get together

Dave Leggett | 9 September 2005

This is an industry with huge product-associated costs – whether development costs for new models, the costs of developing engines that can meet ever more stringent emissions regulations or the investments required with future oriented technologies such as hybrid powertrains and fuel-cells.

And the machinery and plant that actually churns out the end product doesn’t come too cheap either. Investing in the business of making and selling automobiles, or their parts, isn’t one for the faint-hearted or risk-averse. But we all know that.

And it’s a business that, for many firms, is pretty hairy at the moment. Margins are being squeezed pretty well everywhere you look (even China). Everyone wants unit costs as low as possible.

But there are clever car companies who manage to devise business strategies that challenge the assumption that scale economies are all powerful in this industry. They are important, of course, but some companies are nimble enough to work around them. Look at PSA Peugeot Citroen, for example. Working with others to share large development costs can make good business sense.

And bedraggled Fiat appears to be taking a leaf out of PSA’s book. An industrial alliance of some sort is cooking, but don’t expect anything grand along the lines of the ill-fated GM tie-up. It looks, however, like Fiat could be at the advance stages of talks with Ford on collaborating on a small car in Europe.

Ford gets a replacement for the rather long in the tooth Ka, Fiat gets a small car successor to the Cinquecento and they share development costs. It is something that is especially attractive in the low-margin small car area. If Toyota and PSA can do it, then why not Ford and Fiat? It could make good business sense for both parties.

GERMANY: Ford of Europe and Fiat to collaborate on small car – reports
/news_detail.asp?art=49272

ITALY: Fiat to announce industrial alliance ‘by end of year’
/news_detail.asp?art=49240


And there have been a couple of other incidences this week of companies opting for collaborative strategies. This one surprised me a little – I thought BMW had both the resources and inclination to develop its own hybrid technology.

GERMANY/USA: BMW to join DaimlerChrysler-GM hybrid project
/news_detail.asp?art=49254

And still on hybrid powertrain technology, looks like Volkswagen could be working with SAIC in China. How potentially dangerous is that?

GERMANY: Hybrid technology: Volkswagen to go-it-alone in US and Europe but work with SAIC in China
/news_detail.asp?art=49271

And here’s another tie-up:

SOUTH KOREA: Hyundai Motor forms joint venture with Siemens
/news_detail.asp?art=49242


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