Chrysler now, but who next?

As Daimler-Benz scouts around for further acquisitions, the pressure to merge is growing for smaller car manufacturers.

AS THE dust settles after the announcement of Daimler-Benz's acquisition of Chrysler Corp for $41.5bn (pounds 25.5bn), bets are now coming in as to how quickly the merger will accelerate an industry shakeout that is already underway.

Within hours of its proposed Chrysler purchase, Daimler was prowling for additional acquisitions, especially in Asia. That is forcing General Motors, Ford, Volkswagen and smaller companies such as Fiat and Volvo to consider doing likewise or lose ground.

"This deal raises the stakes for the smaller and even some of the larger auto companies," said Michael Robinet, an analyst with CSM Forecasting in Farmington Hills, Michigan.

"They know they have a new global competitor that is flush with cash and has the ability to expand."

Car manufacturers - and, in turn, their suppliers - are consolidating because of a glut of factories,rising development costs, stagnant prices in Europe and America and recessions in Asia and other emerging markets.

Last year there were 750 mergers or acquisitions among companies in the industry, 25 per cent more than in 1996, said Michael Burwell, a Price Waterhouse partner.

That should grow by 15 per cent this year and by another 10 per cent in 1999.

Robert Eaton, the chief executive of Chrysler, says he knows of "half a dozen" additional sets of merger talks among car manufacturers.

He predicts that in five-to-10 years the number of major car companies worldwide will be cut in half, to nine or 10.

The consolidation is driven in part by record stock prices, which make share swaps such as the Daimler acquisition of Chrysler affordable. "Clearly, if we were in the middle of a recession, this never would have happened," said Jay Houghton, marketing manager for AT Kearney, a consultancy.

Even with the shakeout, supply will exceed demand in the world car industry, depressing profits and prices, for decades to come. One reason is that in emerging counties such as Mexico, as well as in developed ones such as France, car factories are symbols of national pride as well as economic entities. Political pressure to build and keep plants open is strong.

The world has enough factories to make 65 million vehicles annually. Of these, only about three-quarters are being used, said Suzanne Murtha, research analyst with DRI/McGraw-Hill in Massachusetts.

By 2002 the world's factories will be capable of building 76 million vehicles but three-quarters of these factories will still be empty, she said.

Five big car manufacturers (GM, Ford, VW, Toyota Motor Corp and the proposed Daimler Chrysler) are the most likely to survive the consolidation in their current form and buy other companies along the way. They are all financially healthy, with strong global manufacturing and sales operations and attractive products.

Analysts are uncertain whether Honda of Japan and BMW of Germany can continue as independent entities. They each have strong products and deep engineering expertise. But Honda, number seven among world car manufacturers, and BMW, number 13, may be too small to stand alone. "I think a very, very good marriage would be GM and BMW or GM and Honda," said Philip Fricke, an analyst for Prudential Securities.

Honda says it is not interested. "We've always wanted to be our own company," said Ron Shriver, vice president of its American manufacturing subsidiary. "We don't have any strategies to change that now."

In Europe the most likely takeover candidates are those whose sales are concentrated in their home markets.

These include Fiat, Volvo, PSA Peugeot Citroen and Renault. Shares of all four companies have risen since Daimler and Chrysler's announcement last week.

VW, Europe's largest car maker, is poised to buy Rolls-Royce Motor Cars with a $700m offer to Vickers that topped rival BMW. VW's small presence in Asia and America is a weakness it will correct through acquisitions.

In Japan, takeover speculation focuses on companies with heavy debt or declining market share. These include Nissan, the Subaru unit of Fuji Heavy Industries and Mitsubishi. Daimler confirmed this week that it is considering a stake in Nissan Diesel Motor, Japan's fourth-largest maker of lorries.

Korean car manufacturers Hyundai, Daewoo and Kia are all considered vulnerable. They may pair up with each other because of historical resistance to overseas ownership.

A similar consolidation is occurring among car part suppliers, who are being pressured by manufacturers to combine to cut costs. They are increasingly required to deliver total systems, such as all the bumpers, lights and trimmings for the front end of cars, instead of a collection of individual parts.

That takes size. Of the 750 companies now supplying car manufacturers globally, about 150 will be left in three-to-four years, Mr Burwell said.

Even big, well-established companies including Cooper Industries, AlliedSignal and TRW have said they may drop at least part of their business, partly because of prohibitive expansion costs.

The consolidation represents a major opportunity for likely survivors, including Dana Corp, Robert Bosch Ag, and Denso Corp, Mr Burwell said.

Start your day with The Independent, sign up for daily news emails
News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
PROMOTED VIDEO
Sport
football
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness