Who's next in the race to merge?

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The Independent Online
THE PROBLEM is that there are too many car makers making too many cars. It costs a minimum of $1bn to develop a volume car, and few corporations can bear such costs, particular in an industry estimated by analysts KPMG to be capable of building 15 million cars a year more than it can sell. Profit margins on new car sales are so thin that some dealers claim only to make money on after-sales service and used cars.

So consolidation is one answer. The larger the car maker, the greater its buying power and the bigger the discounts it can squeeze from components suppliers.

The mega-takeover ball was set rolling last year with the pounds 55bn creation of the transatlantic DaimlerChrysler colossus. Today there are about 20 leading car makers, but Daimler chairman Jurgen Schrempp believes there is room only for 10. Ford's Alex Trotman believes only five will survive.

So who's next? Even such apparently bomb-proof names as Nissan have had their hats tossed into the ring as prospective takeover targets.

The benefits of takeovers for the car makers are huge. Modern car design technology means that different-looking cars can, under the skin, share the same floor pans, or basic chassis. In the Volkswagen stable, the latest range of small VW, Skoda, Seat and Audi cars largely share the same underpinnings.

The Ford Galaxy and Seat Alhambra people-movers are the same cars, as are the Ford Maverick and Nissan Terrano off-roaders, the Peugeot 806 and Citroen Synergie people-movers, and the Ford Probe and Mazda coupes.

Ford will see Volvo as slotting in neatly between its blue oval-badged mass-produced cars and its dearer, upmarket Jaguars. The new acquisition will help the American firm compete with the BMW 5 Series, bigger Audis and Mercedes-Benz cars.

Ford's range, costing from pounds 8,000 to pounds 27,000, makes its money primarily through sales of small cars such as the Ka, Focus and Puma, and its hugely popular mid-range Mondeo. The bigger Ford Scorpio has been constantly slated by critics. Ford has tackled the growing 4-by-4 off-road market with the Maverick and the US-style Explorer, and its Galaxy is a best- selling multi-purpose vehicle (MPV). Volvo has all-wheel drive cars, but no genuine off-roader and no MPV people carrier.

Volvo has revamped its furniture-lugging image by sponsoring motor sport, yachting and cycling, as well as revolutionising its pounds 14,000 to pounds 36,000 model range. The S80 saloon has been described as having the world's best turbo engine, and the C70 two-door coupe is stylish.

For Volvo estate lovers there is still the huge V70 and the smaller V40. If there is any model overlap with Ford, it is the S40 saloon, a Mondeo rival.

Volvo brand values, which include the its "green" credentials, and its safe, secure heritage will also bring Ford a new group of customers that Ford cars seem unable to reach.

Ford, which also owns Aston Martin, have been careful to distance those luxury marques from their volume cars. Even so, Astons and Jaguars benefit from Ford purchasing power and development, and increasingly feature components also used in Ford cars.

At the same time Ford is promoting specific models by their own names, such as the Ka, Focus and Cougar - cars as brands within a brand - in the hope that owners will talk not of owning a Ford, but a Focus.

Those who fear that the Volvo name will die need not worry. Buying the brand is as important as the factories that go with it. As with Jaguar, Ford is certain to keep the Volvo name, with all it evokes in motorists who link it automatically with solidity and strength.