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.

Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
Frank Lampard will pass Billy Wright and equal Bobby Charton’s caps tally of 106 caps against
sportFormer Chelsea midfielder in Etihad stopgap before New York contract
Arts and Entertainment
A scene from Aladdin is performed at the Tony Awards in New York in June
theatreBrit producer Lythgoe makes kids' musical comedy a Los Angeles hit
Usain Bolt of Jamaica smiles and shakes hands with a competitor after Jamaica won their first heat in the men's 4x100m relay
ebookA unique anthology of reporting and analysis of a crucial period of history
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
filmBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
Kenny Ireland, pictured in 2010.
peopleBenidorm actor was just 68
Arts and Entertainment
Preparations begin for Edinburgh Festival 2014
Edinburgh festivalAll the best shows to see at Edinburgh this year
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Financial Analyst - Forecasting - Yorkshire

£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

Business Architect - Bristol - £500 per day

£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

Regulatory Reporting-MI-Bank-Cardiff-£300/day

£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices