As we all return to work (what happened to the holidays?) the news is full of stories related to potential mergers amongst the established car manufacturers – and possibly some newcomers. Honda and Nissan have agreed in principle to merge their companies under a single new holding company. Mitsubishi may get drawn into that as well.
Some believe that the answer to the departure of Carlos Tavares from Stellantis is to combine Renault and Stellantis under the leadership of Luca de Meo. Multiple technical collaborations link Toyota, Subaru, Suzuki and Mazda, that might lead to something more. And Lucid, in the same week that they started production of the new Gravity model, announced that they were looking for partnerships.
If we look back at history, there have been many such mergers, some of which have proven to be more durable than others. The formation of PSA would be judged by most to have been successful, and the Volkswagen Group has passed the test of time at least insofar as its problems today are unrelated to interbrand warfare. The Daimler-Chrysler and BMW-Rover Group mergers, both later reversed were clearly not. Some others might be viewed as having failed such as Ford’s creation and later piecemeal disposal of Premier Automotive Group, but was it just abandoned too early?
There were a wide range of driving factors behind these and other mergers and acquisitions. Some parties had reached the end of the road, others were looking to improve their geographical footprint, access technology and knowhow, or address a broader range of customer segments.
The current wave of discussions seems to be consistently driven by the scale of the product development challenges, both in terms of cost and timeframe. Manufacturers can see the speed with which their Chinese rivals have won share in the Chinese market, and fear that the same will happen in other markets – despite some consumer resistance to buying from new brands.
They are right to be concerned. Having seen and tried a number of the new Chinese products, I’d suggest that for most customers, their only disadvantage is the unfamiliar brand.
Few drive as well as a Ford Focus – but neither do most of the new Fords, and the Focus goes out of production later this year. If the Chinese cars had a familiar badge on the front, most consumers would be very happy, and appreciate some of the standard technology such as 360 degree cameras and head-up displays. I don’t doubt the technical ability of the established OEMs to compete on engineering, but I fear that the pace will be too slow, influenced by traditional thinking that is based around 4 year development processes and 8 year life cycles.
Meanwhile, back in the distribution world the question is to what extent mergers and alliances will spill over into the distribution sector. At distribution level scale matters, as it does upstream in the value chain, but the risk of diluting the strength of the brand and losing focus is very real.
The impact of badge engineering on product is mirrored by a similar impact on how brands come to market. At the national sales company or distributor level, there are real scale benefits to be had in areas like vehicle storage and distribution, parts distribution and sourcing, but in the market and customer-facing activities, the risks arguably outweigh any benefits.
At network level, spreadsheets will demonstrate theoretical benefits in rationalising dealer investor numbers, and potentially combining sites, with the family brands sharing one physical site or rooftop. In reality, the commitment and performance of individual investors to the brands being combined will not fall neatly into a spreadsheet as Stellantis have found in trying to pull all their brands together under single investors in market areas.
You risk losing high performing dealers and their loyal customer base in order to tick all the boxes in a spreadsheet, meeting the goals set higher up in the organisation, distant from the markets. On the other hand, weaker brands in the merged portfolio may now look like attractive add-ons for existing investors, particularly where there are back office synergies created through shared product platforms and administrative processes and systems.
The red thread through all of this however is maintaining the individual brand identities, and even strengthening that through leveraging the combined scale. If products of a brand that has been previously constrained can be improved through accessing the latest technology, more robust development and supply chain economies – whilst retaining a strong brand identity – then this feeds through into distribution. It becomes easier for the NSC or distributor to develop distinctive go-to-market strategies, and investors have more reason to put their money and effort behind each of the family brands.
I would argue that this is where, despite well-known structural challenges, the VW Group has been successful with distinct characters for each of the brands, now including Seat/Cupra which initially struggled. It is a challenge which remains work in progress at Stellantis, and one where others have failed in the past. It will become a challenge for the Chinese manufacturers who have created multiple brands, and who will now need to add brand management to their skillset, and apply that throughout their organisation. The merry-go-round will keep on spinning – who will hold on, who will be thrown off?
