Driven to the financial precipice, OEMs and suppliers of all tiers are looking to lighten their balance sheets of fixed costs and obligations.
The key for the future is being nimble and flexible – having the ability to react quickly if an opportunity or threat arises.
Looking specifically at the OEM side, we have seen a myriad of divestitures and deal formulations; more than anyone would have contemplated a decade ago. Today's industry has globalized from a production, vehicle platform, powertrain family and procurement prospective.
Years ago, OEMs were regionalized and autonomous from a platform and powertrain perspective. Other than the benefits of being regionally diversified, having fully autonomous divisions outside the home market did little to achieve manufacturing economies of scale, gain leverage with the supply base or lower total development costs. Everyone rowed their own boat. For instance, the early 1980s Ford Escort built in the US and Germany shared an ashtray and instrument panel beam. The ashtray was likely not optimized for either market. All other components followed their own regional path as – much for a world car! Several lessons have been learned since.
The first stream of OEM acquisitions through the 70s and 80s were led by owners ill-suited to run the business profitably from a capability perspective, lacking real vision or were driven by other motivations including employment stability, driving false volume and purporting political objectives. In many cases government ownership skewed priorities. This was the case when British Leyland owned Jaguar/Rover or the state of Lower Saxony's current shareholding in Volkswagen.
In the case of Ford's 1990 acquisition of Jaguar, the Blue Oval was seeking to build a family of global luxury brands which could benefit from improved access to technology, scale and better manufacturing resources. Similarly, Ford went upmarket to find Aston Martin (1989), acquired Volvo (1999) and acquired Land Rover from BMW (2000). All were essentially autonomous from a platform, powertrain, dealer and back office infrastructure. The Premier Automotive Group (PAG) was a solid idea on paper but a lack of coordination and commonality essentially led to running several separate car companies under one roof. Ford spent the last five years unraveling PAG and ending their control of Mazda to simplify the business.
A similar dismantling occurred at General Motors, essentially paying for the put option to untangle themselves from Fiat's ownership and selling off equity stakes in Suzuki, Isuzu and Subaru while seeking alternatives for Saab in Sweden. Outside of the Renault/Nissan equity relationship and Toyota's control of Daihatsu, Asian OEMs have stayed on the sidelines with relation to equity stakes choosing instead to build more targeted manufacturing, technology and product relationships.
Globalization and the increasing interconnectedness of global vehicles have thrown a new wrinkle into this unraveling process. We first witnessed it when BMW sold Land Rover to Ford. This spurred an engine supply relationship from BMW to Ford until Ford finished development of their V8 for the Range Rover. This was a harbinger of complications to come.
Selling and divesting control of operations in an interconnected global OEM is increasingly complicated. One needs to look no further than the attempt to sell Opel or Ford's goal of freeing Volvo for other pursuits. Both entities are integral cogs in the global vehicle development process and/or utilize a family of global vehicle and powertrain platforms. Untangling these relationships can take from one to two vehicle cycles, as was witnessed with the interconnection of Renault and Nissan (some platforms are still slated to converge) over a decade later.
Peddling a vehicle brand involves analyzing the impact on several facets of the business. These range from vehicle development capabilities (Opel), technology focus (Volvo's safety), purchasing synergies (Mazda and Ford) and protecting intellectual property rights. Essentially selling an integrated brand with full development capability and an interconnected product network is like selling a room in your house. The sale may be complete though you will be tied to the new owners for years.
The attempted sales of Saturn to Penske Automotive Group (the other PAG) underscores the possibilities of gaining a fully function dealer and distribution network, and instead seeking the ability to contract build products from several vendors. While the Saturn deal never materialized it does outline the scope of possibilities. The sales of the Saab and Volvo (eventually) brands also signal the real underlying value: the ability to gain immediate access to a global brand with extensive dealer networks. The cost and time to build these entities from the ground up can be a serious barrier to entry.
In the end, our brave new world continues to underscore the "less is more" mantra. We are bound to witness several equity sales and joint venture possibilities going forward, though one should expect these to become increasingly complicated and involved. Divesting plants, brands, logos, platforms, regional operations, licensed technologies or even a vehicle line are all real possibilities going forward; interconnectedness just adds a new consideration at the negotiation table.
Michael Robinet can be reached via e-mail at michaelrobinet@csmauto.com.
