Crain News Service
DETROIT (Aug. 28, 2015) — Every auto company merger is difficult. Every one is unique.
Many mergers flop or fall short of expectations, as Automotive News demonstrated in a recent series on the subject. But it also shows that some companies have found ways to make mergers or alliances succeed.
Fiat Chrysler Automobiles (FCA) CEO Sergio Marchionne says auto companies waste excessive capital. As such, more auto makers will be forced to seek partnerships or alliances — with all that implies for their suppliers and car dealers.
The Automotive News analysis found common factors in the successes and common factors in the failures. Those include the counterintuitive finding that merging companies with few overlapping departments and functions often do better than those with lots of overlap. That's because deciding which duplications to eliminate triggers intense turf wars.
It also helps if one partner is near death so its workers are delighted to still have jobs. Success also favors a strong leader who sticks to the plan and can rally employees.
Conversely, mergers are harder if the new boss announces the deal as a merger of equals, then says publicly he always saw it as a straight takeover.
Another warning sign is a CEO who immediately focuses on the next deal and assigns merger details to underlings.
A company can control these negative factors. It has less control if a government is a substantial shareholder. That doesn't preclude mergers or alliances, but government meddling can limit the benefits a merger can offer.
Volkswagen A.G., for example, has built an extensive portfolio of auto, truck and motorcycle brands. But none of VW's acquisitions reduced employment in Lower Saxony, the German state that owns 12.4 percent of the auto maker.
Auto companies facing a capital crunch may be forced to consider a merger or alliance despite the risks. There are lessons in the history of automotive mergers. Companies must honestly evaluate their situation in light of those lessons before deciding a merger is the way to go.
This editorial appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.